Public spending shock in a liquidity constrained economy - Sciences Po Accéder directement au contenu
Pré-Publication, Document De Travail Année : 2008

Public spending shock in a liquidity constrained economy

Edouard Challe
  • Fonction : Auteur
  • PersonId : 1099429
Xavier Ragot

Résumé

This paper analyses the e§ects of transitory increases in government spending when public debt is used as liquidity by the private sector. Aggregate shocks are introduced into a áexible-price, incomplete-market economy where heterogenous, inÖnitely-lived households face occasionally binding borrowing constraints and store wealth to smooth out idiosyncratic income áuctuations. Debt-Önanced increases in public spending facilitate self-insurance by bond holders and may crowd in private consumption. The implied higher stock of liquidity also loosens the borrowing constraints faced by Örms, thereby raising labour demand and possibly the real wage. Whether private consumption and wages actually rise or fall ultimately depends on the relative strengths of the liquidity and wealth e§ects that arise following the shock.
Fichier principal
Vignette du fichier
2008-challe-ragot-public-spending-pse.pdf (241.34 Ko) Télécharger le fichier
Origine : Fichiers éditeurs autorisés sur une archive ouverte

Dates et versions

hal-03461855 , version 1 (01-12-2021)

Identifiants

Citer

Edouard Challe, Xavier Ragot. Public spending shock in a liquidity constrained economy. 2008. ⟨hal-03461855⟩
15 Consultations
23 Téléchargements

Partager

Gmail Facebook X LinkedIn More