Macroeconomic Effects of China’s Fiscal Stimulus

28 Pages Posted: 25 Apr 2011

See all articles by Pietro Cova

Pietro Cova

Bank of Italy

Massimiliano Pisani

Bank of Italy

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: October 2010

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.

Suggested Citation

Cova, Pietro and Pisani, Massimiliano and Rebucci, Alessandro, Macroeconomic Effects of China’s Fiscal Stimulus (October 2010). IDB Working Paper No. 72, Available at SSRN: https://ssrn.com/abstract=1818750 or http://dx.doi.org/10.2139/ssrn.1818750

Pietro Cova (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Massimiliano Pisani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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