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Government Spending and Consumption at the Zero Lower Bound: Evidence from Household Retail Purchase Data

Author

Listed:
  • Marios Karabarbounis

    (Federal Reserve Bank of Richmond)

  • Marianna Kudlyak

    (Federal Reserve Bank of Richmond)

  • M. Saif Mehkari

    (University of Richmond)

  • Bill Dupor

    (Federal Reserve Bank of St. Louis)

Abstract

This paper uses cross-regional variation in the fiscal stimulus of 2009-2013 to analyze the effects of government spending on household-level consumption when the nominal interest rate is zero. The key novelty is the construction of a comprehensive measure of local consumption expenditures using (i) household-level retail purchase data using Nielsen Homescan Consumer Panel and (ii) state-level consumption data from the BEA. Most of our specifications point toward a significantly positive consumption multiplier around 0.25 for non-durable consumption. We translate our regional multiplier into an aggregate multiplier using a heterogeneous agents, New Keynesian model with multiple regions and input linkages.

Suggested Citation

  • Marios Karabarbounis & Marianna Kudlyak & M. Saif Mehkari & Bill Dupor, 2016. "Government Spending and Consumption at the Zero Lower Bound: Evidence from Household Retail Purchase Data," 2016 Meeting Papers 1463, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1463
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    References listed on IDEAS

    as
    1. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    2. Conley, Timothy G. & Dupor, Bill, 2013. "The American Recovery and Reinvestment Act: Solely a government jobs program?," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 535-549.
    3. Robert E. Hall, 2009. "By How Much Does GDP Rise If the Government Buys More Output?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 183-249.
    4. Greg Kaplan & Giovanni L. Violante, 2014. "A Model of the Consumption Response to Fiscal Stimulus Payments," Econometrica, Econometric Society, vol. 82(4), pages 1199-1239, July.
    5. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    Full references (including those not matched with items on IDEAS)

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