Measuring the effects of monetary and fiscal policy shocks on domestic investment in China

Feng Min, Fenghua Wen and Xiong Wang

International Review of Economics & Finance, 2022, vol. 77, issue C, 395-412

Abstract: This paper investigates the dynamic effects of monetary and fiscal policy shocks on Chinese aggregate investment and three of its components. Our findings are as follows: First, we find that government spending shocks have no significant impact on aggregate investment or its components. Second, we compare the effectiveness of two kinds of monetary policy and show that shocks to the benchmark lending rate have a non-significant effect on aggregate investment, while shocks to the money supply have a positive and significant effect on aggregate investment only during periods of expansion. Third, a positive interest rate shock has a significant negative effect on state-owned investment, while it has an insignificant impact on private investment and foreign investment. Overall, our results show that both government spending policy and monetary policy have rather limited impacts on boosting domestic investment in China. Thus, it is not necessary for the Chinese government to implement a large-scale economic stimulus package to boost domestic investment and output growth.

Keywords: Monetary policy shocks; Fiscal policy shocks; Domestic investment; Threshold vector autoregression (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056021002148
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:77:y:2022:i:c:p:395-412

DOI: 10.1016/j.iref.2021.10.010

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().