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Macroeconomic Effects of China’s Fiscal Stimulus


  • Pietro Cova
  • Massimiliano Pisani
  • Alessandro Rebucci


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.

Suggested Citation

  • Pietro Cova & Massimiliano Pisani & Alessandro Rebucci, 2010. "Macroeconomic Effects of China’s Fiscal Stimulus," Research Department Publications 4689, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:4689

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    References listed on IDEAS

    1. Hamid Faruqee & Douglas Laxton & Dirk Muir & Paolo A. Pesenti, 2007. "Smooth Landing or Crash? Model-Based Scenarios of Global Current Account Rebalancing," NBER Chapters,in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 377-456 National Bureau of Economic Research, Inc.
    2. Nicoletta Batini & Papa N'Diaye & Alessandro Rebucci, 2005. "The domestic and global impact of Japan’s policies for growth," Proceedings, Federal Reserve Bank of San Francisco.
    3. Paolo Pesenti, 2008. "The Global Economy Model: Theoretical Framework," IMF Staff Papers, Palgrave Macmillan, vol. 55(2), pages 243-284, June.
    4. Pietro Cova & Massimiliano Pisani & Alessandro Rebucci, 2009. "Global Imbalances: The Role of Emerging Asia," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 716-733, September.
    5. repec:cje:issued:v:50:y:2017:i:3:p:660-684 is not listed on IDEAS
    6. Dong He & Zhiwei Zhang & Wenlang Zhang, 2009. "How Large Will Be The Effect Of China'S Fiscal Stimulus Package On Output And Employment?," Pacific Economic Review, Wiley Blackwell, vol. 14(5), pages 730-744, December.
    7. Martin Bodenstein & Christopher J. Erceg & Luca Guerrieri, 2017. "The effects of foreign shocks when interest rates are at zero," Canadian Journal of Economics, Canadian Economics Association, vol. 50(3), pages 660-684, August.
    8. Pietro Cova & Massimiliano Pisani & Nicoletta Batini & Alessandro Rebucci, 2008. "Productivity and Global Imbalances: The Role of Nontradable Total Factor Productivity in Advanced Economies," IMF Staff Papers, Palgrave Macmillan, vol. 55(2), pages 312-325, June.
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    Cited by:

    1. Alessandro Rebucci & Ambrogio Cesa-Bianchi & M. Hashem Pesaran & TengTeng Xu, 2012. "China's Emergence in the World Economy and Business Cycles in Latin America," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 1-75, January.
    2. Dreger, Christian & Zhang, Yanqun, 2010. "Is there a bubble in the Chinese housing market?," Discussion Papers 290, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    3. Dai, Meixing, 2011. "Motivations and strategies for a real revaluation of the Yuan," MPRA Paper 30440, University Library of Munich, Germany.
    4. Kalinowski, Thomas, 2013. "Crisis management and the varieties of capitalism: Fiscal stimulus packages and the transformation of East Asian state-led capitalism since 2008," Discussion Papers, Project Group Modes of Economic Governance SP III 2013-501, Social Science Research Center Berlin (WZB).
    5. Adam McKissack & Jessica Xu, 2011. "Chinese macroeconomic management through the crisis and beyond," Treasury Working Papers 2011-01, The Treasury, Australian Government, revised Jun 2011.
    6. Creina Day, 2011. "China's Fiscal Stimulus and the Recession Australia Never Had: Is a Growth Slowdown Now Inevitable?," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 18(1), pages 23-34.
    7. Fardoust, Shahrokh & Lin, Justin Yifu & Luo, Xubei, 2012. "Demystifying China's fiscal stimulus," Policy Research Working Paper Series 6221, The World Bank.
    8. Su-Ling TSAI & Hsien-Hung KUNG & Kai-yin Allison HAGA, 2015. "Testing for Multiple Bubbles in the 35 Large and Medium Cities of Real Estate Price in China," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(605), W), pages 275-290, Winter.

    More about this item


    Fiscal stimulus; Financial crisis;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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