The medium-term effects of investment stimulus

Ruben Dominguez-Diaz, Samuel Hurtado and Carolina Menéndez
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Carolina Menéndez: Banco de España

No 2402, Working Papers from Banco de España

Abstract: This paper presents an endogenous growth general equilibrium model (EGGEM) of firm dynamics and innovative investment for the Spanish economy that allows the medium-term effects of economic policies and shocks to be better understood. The model is calibrated using both aggregate and firm-level data. It is then used to assess the medium-term macroeconomic consequences of the different components of the Next Generation EU (NGEU) programme, including public investment, private capital transfers and innovative investment transfers. According to our baseline simulation, the NGEU funds significantly foster economic activity by raising aggregate productivity, private investment and employment. As a result, annual GDP growth is increased by 0.17 percentage points on average over the period of NGEU disbursement. Among the different policy instruments considered, we find that innovation transfers have the largest impact on aggregate output, only matched by increases in the stock of public capital if it is highly efficient.

Keywords: productivity; public investment; endogenous growth; Next Generation EU (search for similar items in EconPapers)
JEL-codes: E65 H54 O38 O40 O52 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2024-01
New Economics Papers: this item is included in nep-dge and nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2402

DOI: 10.53479/35913

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