Munich Personal RePEc Archive

Effects of government spending on consumption Dynamics

Takumah, Wisdom (2021): Effects of government spending on consumption Dynamics.

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The effects of fiscal policy on the economy is increasingly popular in the literature of empirical macroeconomics and factor-augmented vector autoregressive (FAVAR) models have become a popular tool in explaining how economic variables interact over time. This paper focused on the effect of fiscal policy on aggregate and disaggregated consumption by applying the factor-augmented vector Autoregression (FAVAR) model. The study estimated the FAVAR model using the computationally simpler principal component method. I found that government spending shock increases aggregate consumption; and there exists heterogeneity within durable, nondurable, and service consumption variables.

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