The Government Spending Multiplier in a Multi-Sector Model
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The Government Spending Multiplier in a Multi-Sector Model. / Bouakez, Hafedh; Rachedi, Omar; Santoro, Emiliano.
In: American Economic Journal: Macroeconomics, Vol. 15, No. 1, 2023, p. 209-239.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - The Government Spending Multiplier in a Multi-Sector Model
AU - Bouakez, Hafedh
AU - Rachedi, Omar
AU - Santoro, Emiliano
PY - 2023
Y1 - 2023
N2 - We study the effects of aggregate government spending shocks in a production network economy where sectors differ in their price rigidity, factor intensities, use of intermediate inputs, and contribution to final demand. The model implies an aggregate value-added multiplier that is 75 percent (and $0.32) larger than that obtained in the average one-sector economy. This amplification is mainly driven by input-output linkages and—to a lesser extent—sectoral heterogeneity in price rigidity. Aggregate government spending shocks also lead to heterogeneous responses of sectoral value added, which are larger among upstream industries. We present novel empirical evidence supporting this prediction.
AB - We study the effects of aggregate government spending shocks in a production network economy where sectors differ in their price rigidity, factor intensities, use of intermediate inputs, and contribution to final demand. The model implies an aggregate value-added multiplier that is 75 percent (and $0.32) larger than that obtained in the average one-sector economy. This amplification is mainly driven by input-output linkages and—to a lesser extent—sectoral heterogeneity in price rigidity. Aggregate government spending shocks also lead to heterogeneous responses of sectoral value added, which are larger among upstream industries. We present novel empirical evidence supporting this prediction.
U2 - 10.1257/mac.20200213
DO - 10.1257/mac.20200213
M3 - Journal article
VL - 15
SP - 209
EP - 239
JO - American Economic Journal: Macroeconomics
JF - American Economic Journal: Macroeconomics
SN - 1945-7707
IS - 1
ER -
ID: 275067448