Das Public Kapital: How Much Would Higher German Public Investment Help Germany and the Euro Area?
IMF Working Papers, December 17, 2014
Source details
- Canonical URL
- Das Public Kapital: How Much Would Higher German Public Investment Help Germany and the Euro Area?
Other formats
Bibliographic details
- Authors: Selim A Elekdag, Dirk V Muir
- Published: December 17, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498329934.001
Overview
- Paper argues higher German public investment would:
- stimulate domestic demand in the near term,
- reduce the current account surplus,
- raise output over the longer-run,
- generate beneficial regional spillovers.
- Notes that time-to-build delays can weaken short-run stimulus effects.
- Emphasizes that expansionary effects are substantially strengthened with an accommodative monetary policy stance—as is typical during periods of economic slack.
- Observes that the current low-interest rate environment presents a window of opportunity to finance higher public investment at historically favorable rates.
Key Findings
- Higher German public investment delivers both short-term demand stimulus and longer-term output gains.
- Time-to-build delays can dampen short-run stimulus impact.
- Monetary policy accommodation substantially amplifies the expansionary effects of public investment.
- Higher public investment helps reduce Germany's current account surplus.
- There are beneficial regional spillovers to the euro area from higher German public investment.
Policy Implications and Recommendations
- Use the current low-interest rate environment as an opportunity to finance higher public investment at historically favorable rates.
- Pair higher public investment with an accommodative monetary policy stance to strengthen expansionary effects, especially during periods of economic slack.
- Account for time-to-build delays when designing fiscal stimulus to manage short-run effectiveness.
Analytical Scope and Subjects Covered
- Subjects: Accommodative monetary policy, Expenditure, Financial sector policy and analysis, Fiscal policy, Fiscal stimulus, Foreign exchange, Monetary policy, Public investment spending, Real effective exchange rates, Spillovers.
- Keywords include: Accommodative monetary policy, aggregate supply, closed economy, crowding in, debt-financed increase, euro area, exchange rate, Fiscal policy, Fiscal stimulus, Germany, government investment, investment expenditure, monetary policy accommodation, monetary policy channel, output gap, public investment, role of government investment, Spillovers, time-to-build delays, WP.
Content in this bundle
- 1. Germany: Stylized Facts