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Macroeconomic Effects of China’s Fiscal Stimulus

Pietro Cova (), Massimiliano Pisani () and Alessandro Rebucci ()

No 4689, Research Department Publications from Inter-American Development Bank, Research Department

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.

Keywords: Fiscal stimulus; Financial crisis (search for similar items in EconPapers)
JEL-codes: E62 F41 F42 H30 H63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-dge, nep-mac and nep-tra
Date: 2010-10
References: View complete reference list from CitEc
Citations: View citations in EconPapers (14) Track citations by RSS feed

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