Web Analytics
Effects of Government Spending and Consumption Dynamics | Wisdom Takumah

Effects of Government Spending and Consumption Dynamics


The effects of fiscal policy on the economy is increasingly popular in the literature of empirical macroeconomics and factor-augmented vector autoregressive (FAVAR) models have become a popular tool in explaining how economic variables interact over time.This paper focused on the effect of fiscal policy on aggregate and dis- aggregated consumption by applying the factor-augmented vector autoregression (FAVAR) model. The study specifically estimated the FAVAR model using the computationally simpler principal component method. The result shows that con- sumption increases after government spending shock. Also, there is heterogeneous effects within disaggregated consumption variables resulting from government spend- ing shock.