Work detail

Rule-of-thumb consumers in the New Keynesian framework

Author: Mgr. Tomáš Adam
Year: 2011 - summer
Leaders: PhDr. Jaromír Baxa Ph.D.
Work type: Economic Theory
Language: English
Pages: 96
Awards and prizes: M.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance and for an extraordinarily good masters diploma thesis.
Abstract: This thesis investigates the effects of government spending
on aggregate economic variables in the Czech Republic.
The standard RBC and New Keynesian models assume only
forward-looking households despite the evidence of a significant
fraction of non-optimizing households. These models
do not provide reasonable predictions for the response of
consumption: both models predict its fall following a government
spending shock. Therefore, a variant of the New
Keynesian model, where rule-of-thumb households coexist
with optimizing households, is used for the analysis.
We have found that fiscal policy has a positive impact on
output, although government spending multiplier does not
exceed one. Also, the impact on consumption is positive for
several periods following a fiscal spending shock, which is
consistent with the evidence.
Downloadable: Diploma Thesis of Adam


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