Citation

Discussion Paper Details

Please find the details for DP15894 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: The Transmission Channels of Government Spending Uncertainty

Author(s): Beliansk Anna, Aurélien Eyquem and Céline Poilly

Publication Date: March 2021

Keyword(s): Government spending uncertainty, portfolio adjustment cost and stochastic volatility

Programme Area(s): Monetary Economics and Fluctuations

Abstract: Higher uncertainty about government spending generates a persistent decline in the economic activity in the Euro Area. This paper emphasizes the transmission channels explaining this empirical fact. First, a Stochastic Volatility model is estimated on European government consumption to build a measure of government spending uncertainty. Plugging this measure into a SVAR model, we stress that government spending uncertainty shocks have recessionary, persistent and humped-shaped effects. Second, we develop a New Keynesian model with financial frictions applying to a portfolio of equity and long-term government bonds. We argue that a portfolio effect -- resulting from the imperfect substitutability among both assets -- acts as a critical amplifier of the usual transmission channels.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15894

Bibliographic Reference

Anna, B, Eyquem, A and Poilly, C. 2021. 'The Transmission Channels of Government Spending Uncertainty'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15894