Monetary policy with non-separable government spending

Figures & data

Figure 1. The IS curve.

Table

$\beta$	Discount factor	0.99
$\sigma$	inverse elasticity of intertemporal substitution	1
$\phi$	inverse Frisch labour supply elasticity	3
$\chi$	inverse elasticity of substitution between $C_t\text{amp}{G}_t$	20/0.01
$ϵ$	elasticity of substitution	6
$\delta$	share of private consumption in the aggregate consumption bundle	0.95
$\theta$	Calvo probability	0.75
${\rho }_g$	AR(1) coefficient of government expenditure	0.9
${\varphi }_{\pi }$	inflation elasticity of the nominal interest rate	1.5
${\varphi }_x$	output gap elasticity of the nominal interest rate	0.5
${\rho }_a$	AR(1) coefficient of productivity shock	0.9

Figure 2. Response to a TFP Shock (Complementarity).

Figure 3. Response to a government consumption shock (Complementarity).

Figure 4. Response to a TFP Shock (Substitutability).

Figure 5. Response to a government consumption shock (Substitutability).

Figure 6. Response to a monetary shock.

Table 1. The crowding-out effect of monetary policy to monetary policy.

Dependent variable:
Private Consumption	(1)	(2)	(3)	(4)	(5)	(6)
Government Consumption	0.114***	0.123**	0.126***	0.114***	0.124***	0.126***
	(0.016)	(0.016)	(0.016)	(0.016)	(0.016)	(0.016)
Changes in Policy Rate		−0.0004**	−0.0004**		−0.0004**	−0.0004**
		(0.0002)	(0.0002)		(0.0002)	(0.0002)
Changes in Policy Rate x			0.0001**			0.0001**
Government Consumption			(0.00006)			(0.00007)
Output	0.741***	0.744***	0.747***	0.741***	0.744***	0.746***
	(0.013)	(0.013)	(0.013)	(0.013)	(0.013)	(0.013)
Trend Consumption	0.0284***	0.0297***	0.0304***	0.0284**	0.0298***	0.0305***
	(0.006)	(0.006)	(0.006)	(0.006)	(0.006)	(0.006)
Trend Output	−0.0264***	−0.0294***	−0.0301***	−0.0263***	−0.0291***	−0.0301***
	(0.006)	(0.006)	(0.006)	(0.006)	(0.006)	(0.006)
Financial Crisis Dummy				−0.008	−0.009	−0.006
				(0.060)	(0.059)	(0.059)
Constant	−0.890	1.061	1.511	−0.983	0.956	1.439
	(1.692)	(1.701)	(1.739)	(1.820)	(1.828)	(1.865)
Country Fixed Effects	yes	yes	yes	yes	yes	yes
Observations	3,220	3,150	3,185	3,220	3,185	3,150
Countries	35	35	35	35	35	35
R-squared	0.47	0.51	0.51	0.47	0.50	0.50

Standard errors are in parentheses.

Significance levels: *** p < 0.01, ** p < 0.05, * p < 0.1.