Macroeconomic%20Effects%20of%20China%E2%80%99s%20Fiscal%20Stimulus

Working Papers

Macroeconomic Effects of China’s Fiscal Stimulus


CODE: IDB-WP-211
AUTHOR(s): Cova, Pietro , Pisani, Massimiliano , Rebucci, Alessandro
PUBLISHED: October 2010
LANGUAGE: English
RELATED TOPICS: Macroeconomics
DOWNLOAD FILE IN: English

Abstract:

This paper analyzes the macroeconomic impact of China’s 2009-2010 fiscal stimulus package by simulating a dynamic general equilibrium multi-country model of the world economy, showing that the effects on China’s economic activity are sizeable: absent fiscal stimulus China’s GDP would be 2.6 and 0.6 percentage points lower in 2009 and 2010, respectively. The effects are stronger under a US dollar peg because of the imported loose monetary policy stance from the United States. Higher Chinese aggregate demand stimulates higher (gross and net) imports from other regions, in particular from Japan and the rest of the world, and, only to a lesser extent, from the United States and the euro area. However, the overall GDP impact of the Chinese stimulus on the rest of the world is limited. These results warn that a fiscal policydriven increase in China’s domestic aggregate demand associated with a more flexible exchange rate regime have only a limited potential to contribute to an orderly resolution of global trade and financial imbalances.

Related Research by JEL Codes:
(or click here to find research by JEL Codes)
  • How to put together the fiscal puzzle? New sustainability indicators
    Books
    B-119 - January 2000

    Latin American countries suffer from severe macroeconomic volatility. What is the link between this volatility and the sustainability of fiscal policy? Does the cause and effect relationship run only from macro to fiscal or is it a two-way street? ¿Como armar el rompecabezas fiscal? examines this relationship in the context of a search for appropriate indicators of fiscal policy sustainability. Th ... (View publication)

  • Institutional Arrangements to Determine Loan Repayment in Chile
    Working Papers (Research Network)
    R-374 - September 1999

    The major objective of this paper is to investigate institutional arrangements as a determinant of loan repayment in the Chilean financial market. A second aim is to analyze the effects of these arrangements on borrowers’ behavior. Although La Porta et al. (1997, 1998) classify Chile as a French Civil Law country, the law and private arrangements have evolved consistently with the capital market d ... (View publication)

  • Institutional Arrangements and Fiscal Performance: The Latin American Experience
    Working Papers
    WP-367 - February 1998

    This paper considers whether institutional factors, in this instance electoral systems and procedures, affect Latin American countries' fiscal performance as measured by the size of the public sector, fiscal deficits, the size of the public debt, and the degree of procyclality of fiscal policy. The authors find that electoral systems characterized by large district magnitude and high political fra ... (View publication)

Hello, Welcome to the IDB!

Please join our mailing list by simply entering your email below.