GOVERNMENT CONSUMPTION AND PRIVATE CONSUMPTION CORRELATIONS

This paper examines whether the introduction of government consumption expenditure in a standard one good model of the international real bu siness cycle is sufficient to reconcile the theory with the existing p attern of international consumption and output correlations. It is sho wn that the model can account for existing international correlations only under specific assumptions about the size of effect of government expenditure on agents' utility or the variability of government expen diture shocks. Crucial parameters are identified and the sensitivity o f the results discussed. (C) 1998 Elsevier Science Ltd. All rights res erved.