Using Reserves to Finance the Increase in Government Infrastructure Investment in China
نویسنده
چکیده
In this paper I analyze the impact of increasing government infrastructure investment by using existing large foreign exchange reserves in a fully optimizing model matching the Chinese economy. Even though the private investment falls in the nontradable sector, real expenditure and money balance decrease in the short run, the infrastructure investment greately enhances the efficiency and productivity of the private sector, and gives rise to an entire sequence of productivity increases. In the long run, private investment is enhanced, total output, real expenditure and money balance rise to a higher level with no negative impact on the budget of the central government. JEL classification: E6; H54.
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