Local Government Borrowing’s Expansionary Monetary Effect and Its Policy Synergy

Abstract: All governments face increasingly frequent issues arising from aggregate supply and demand against currency circulation and financial stability, and public finance and banking authorities employ a variety of policy instruments to keep the economy stable and coordinated. How to avoid policy conflicts and maximize effectiveness in policy portfolio of local government borrowing, which is taken as a major macro-control instrument, is a subject that needs in-depth study. This paper probes into local government borrowing’s monetary effect and transmission mechanism and its best synergistic model with monetary policy by the construction of a NK-DSGE model covering financial frictions, multi-period bonds and borrowing rules. The findings are as follows. (1) The shocks of one-percent local government borrowing (bond duration=5 years) push up the money multiplier by 0.39% to produce expansionary monetary effect, and the longer the bond duration, the greater the effect. (2) In the context of physical and financial shocks, monetary policy adopts a moderately tight reverse synergy with local government borrowing, effectively restraining its expansionary monetary effect for better economic stability and recovery. (3) For bonds with longer maturities, raising the risk sensitivity of local government borrowing rules benefits the improvement of welfare.

Standort
Deutsche Nationalbibliothek Frankfurt am Main
Umfang
Online-Ressource
Sprache
Englisch

Erschienen in
Local Government Borrowing’s Expansionary Monetary Effect and Its Policy Synergy ; volume:11 ; number:3 ; year:2023 ; pages:46-65 ; extent:20
China finance and economic review ; 11, Heft 3 (2023), 46-65 (gesamt 20)

Urheber
Li, Na
Liu, Rong

DOI
10.1515/cfer-2022-0016
URN
urn:nbn:de:101:1-2023021113022320831650
Rechteinformation
Open Access; Der Zugriff auf das Objekt ist unbeschränkt möglich.
Letzte Aktualisierung
14.08.2025, 10:44 MESZ

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Beteiligte

  • Li, Na
  • Liu, Rong

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