Das Public Kapital: How Much Would Higher German Public Investment Help Germany and the Euro Area?

Selim Elekdag and Dirk Muir

No 2014/227, IMF Working Papers from International Monetary Fund

Abstract: Given the backdrop of pressing infrastructure needs, this paper argues that higher German public investment would not only stimulate domestic demand in the near term and reduce the current account surplus, but would also raise output over the longer-run as well as generate beneficial regional spillovers. While time-to-build delays can weaken the impact of the stimulus in the short-run, the expansionary effects of higher public investment are substantially strengthened with an accommodative monetary policy stance—as is typical during periods of economic slack. The current low-interest rate environment presents a window of opportunity to finance higher public investment at historically favorable rates.

Keywords: WP; public investment; government investment; exchange rate; output gap; Fiscal policy; monetary policy accommodation; Germany; euro area; time-to-build delays; investment expenditure; monetary policy channel; debt-financed increase; crowding in; aggregate supply; closed economy; credit crunch; subdued investment; role of government investment; accommodative monetary policy stance; euro area growth; implications of government investment; Public investment spending; Fiscal stimulus; Accommodative monetary policy; Real effective exchange rates; Spillovers; Europe; Asia and Pacific; Global (search for similar items in EconPapers)
Pages: 45
Date: 2014-12-17
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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