Market segmentation and spending multipliers.

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Date: May 2022
Publisher: Elsevier B.V.
Document Type: Report; Brief article
Length: 307 words

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Abstract :

Keywords Fiscal multiplier; Mobility frictions; Input-output linkages Highlights * Government demand is biased towards some sectors. * Production factors are slow to adjust to relative changes in demand. * Market segmentation reduces crowding out and raises multipliers. * A multi-sector DSGE model is calibrated to detailed U.S. input-output tables. * A spending shock shifts relative demand, wages and prices across sectors in the data. Abstract When workers are sluggish to change sectors and government demand is concentrated on few sectors, an increase in government spending has limited impact on production in other sectors and multipliers are higher. Compared to a one-sector model, a model calibrated to the 404 sectors of the U.S. economy raises multipliers by 0.5 when preferences feature no wealth effects on labor supply and by more if wealth effects are present. Relative price movements observed in response to spending shocks are consistent with the model's mechanism. The model suggests that multipliers depend on the composition of stimulus packages. Author Affiliation: KU Leuven, Naamsestraat 69, Leuven 3000, Belgium Article History: Received 6 December 2021; Revised 23 February 2022; Accepted 25 February 2022 (footnote)[white star] I would like to thank the editor as well as an anonymous referee for very valuable comments. I would also like to thank Luisa Lambertini, Nir Jaimovich, Rahul Mukherjee, Christopher House and Linda Tesar for their insights. I also thank seminar participants at KU Leuven, the University of Antwerp, LMU Munich, Bristol University, Banque de France, Stavanger University, the University of Lausanne, and the University of Basel, as well as conference participants at the EEA summer meeting 2020, the Young Swiss Economist Meeting 2021, the Royal Economic Society Meeting 2021 and the Society for Computational Economics Meeting 2021 and the 2021 meeting of the Society for Economic Dynamics. Supplementary material is available on the my personal website. Byline: Christian Proebsting [Christian.Probsting@kuleuven.be]

Source Citation

Source Citation   

Gale Document Number: GALE|A703193412