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Government spending, interest rates, and capital accumulation in a two-sector model

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  • Yoshiyasu Ono
  • Akihisa Shibata

Abstract

This paper investigates dynamic impacts of a temporary fiscal expansion in a two-sector growth model. If the expansion falls on consumption-investment commodities, capital accumulation can be either promoted or reduced and the short-term interest rate unambiguously rises. If the expansion falls on consumption commodities, capital accumulation is crowded out and the short-term interest rate declines during the period of the fiscal expansion. It is also shown that fiscal spending on the consumption commodity can move the short- and long-term interest rates in opposite directions.

Suggested Citation

  • Yoshiyasu Ono & Akihisa Shibata, 2001. "Government spending, interest rates, and capital accumulation in a two-sector model," Canadian Journal of Economics, Canadian Economics Association, vol. 34(4), pages 903-920, November.
    • Handle: RePEc:cje:issued:v:34:y:2001:i:4:p:903-920
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    Cited by:

    1. Shigeto Kitano, 2009. "Nominal debt and inflation stabilization," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(4), pages 409-422, December.
    2. Rodríguez Nava Abigail & Francisco Venegas Martínez, 2010. "Efectos del tipo de cambio sobre el déficit público: modelos de simulación Monte Carlo," Contaduría y Administración, Accounting and Management, vol. 55(3), pages 11-40, septiembr.

    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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