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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Lambertini, Luisa / Nimark, Kristoffer / Wang, Pengfei

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1935-1690
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Fiscal Shocks and Real Rigidities

Francesco Furlanetto / Martin Seneca
Published Online: 2009-02-09 | DOI: https://doi.org/10.2202/1935-1690.1781

In this paper we show that results on the effects of fiscal shocks in Galí, López-Salido and Vallés (2007) rely on a high degree of price stickiness and a large percentage of financially constrained agents. Real rigidities in the form of habit persistence, fixed firm-specific capital and Kimball demand curves interact in interesting ways with nominal and financial rigidities and allow us to reproduce the same consumption multiplier as Galí et al. (2007) under only two and a half quarters of price stickiness, instead of four, and only 30 per cent of constrained agents instead of 50 per cent. Therefore, real rigidities are useful in the study of fiscal shocks in addition to monetary and productivity shocks as has been shown in the previous literature, though rule-of-thumb consumption remains too crude a mechanism for accounting for the hump-shaped response of consumption found in the data.

Keywords: rule-of-thumb consumers; fiscal shocks; nominal rigidities; real rigidities; firm-specific capital; habit persistence; Kimball demand curves

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Published Online: 2009-02-09


Citation Information: The B.E. Journal of Macroeconomics, ISSN (Online) 1935-1690, DOI: https://doi.org/10.2202/1935-1690.1781.

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[1]
GIORGIO MOTTA and PATRIZIO TIRELLI
Journal of Money, Credit and Banking, 2012, Volume 44, Number 7, Page 1351
[2]
Francesco Furlanetto and Martin Seneca
The Scandinavian Journal of Economics, 2012, Volume 114, Number 2, Page 658

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