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Government Purchases and Real Interest Rates

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  • N. Gregory Mankiw

Abstract

This paper examines the dynamic impact of government purchases in a simple general equilibrium model with both durable and non-durable consumer goods as well as productive capital. The model generates perhaps surprising results. In particular, increases in government purchases are shown to cause reductions in real interest rates. The model thus provides a possible explanation for the observed behavior of real interest rates around wars.

Suggested Citation

  • N. Gregory Mankiw, 1986. "Government Purchases and Real Interest Rates," NBER Working Papers 2009, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2009
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    1. Abel, Andrew B & Blanchard, Olivier J, 1983. "An Intertemporal Model of Saving and Investment," Econometrica, Econometric Society, vol. 51(3), pages 675-692, May.
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    7. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
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