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What are the impacts of government spending on the Norwegian economy?

Patel, Chandni; Sandnes, Nina Moghal
Master thesis
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2606614.pdf (3.561Mb)
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https://hdl.handle.net/11250/2687995
Utgivelsesdato
2020
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  • Master of Science [963]
Sammendrag
To analyse the effects of government spending, we use a structural vector

autoregressive (SVAR) model. The recursive approach relies on the Cholesky

ordering and is applied to identify a government spending shock. We apply

quarterly data from Norway, with sample period 1991:1-2019:3. In the baseline

model we find a short-lived, positive and significant effect on GDP, inflation and

interest rate. The resulting multiplier is below one for all horizons, which could be

consistent with the New Keynesian model. Extending the model, a shock to the

two components of government spending, public consumption and public

investment, is applied. Our main findings suggest that public investment has the

largest impact, leading to a persistent and positive effect on GDP. However, the

effect on GDP may also be influenced by a fall in the interest rate. Private

consumption is included as another extension. The effect on private consumption

is not positive, although it does not have a clear fall either, being insignificant for

the whole period. Because consumption does not rise, as well as the interest rate

reacts negatively, our results are leaning more towards the New Keynesian model.
Beskrivelse
Masteroppgave(MSc) in Master of Science in Business, Economics - Handelshøyskolen BI, 2020
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Handelshøyskolen BI

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