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The Financial Multiplier of Government Infrastructure Investment: An Analysis Based on the DSGE Model

【Authors】
WANG Chuan
【WorkUnit】
Chinese Academy of Social Sciences, 100028.
【Abstract】

This paper brings government infrastructure investment into a medium-sized DSGE model and, by estimating and calibrating China's quarterly macroeconomic data, compares the multiplier effects of infrastructure construction when the investment has different time spans and different spillover effects. The findings are as follows: The policy effect of infrastructure expenditure depends on the time span and the spillover effect. Specifically, for short-term investment, the cumulative multiplier is significantly lower than 1, while for long-term investment, the cumulative multiplier is about 1.7. With higher public capital spillover, the multiplier of infrastructure investment can be up to 3.65. Besides, with conventional monetary policy in place, infrastructure investment with a longer time span has a higher multiplier; while with zero interest rate, short-term investment has a higher multiplier as it cuts the real interest rate and drives investment and consumption.

JEL:H39, E62

【KeyWords】
Infrastructure Investment, Fiscal Policy, Multiplier Effect, DSGE Model