Time to build, financial frictions, and the effectiveness of fiscal stimulus-Reference-Cited by-同舟云学术

Time to build, financial frictions, and the effectiveness of fiscal stimulus

Published:2022-12-27 Issue:1 Volume:1 Page:
ISSN:2972-3426
Container-title:Financial Economics Letters
language:en
Short-container-title:FEL

Author:

Ao Zhiming¹,Chen Ziyue²,Nie He³

Affiliation:

1. School of Economics, Jinan University, Guangzhou, China

2. Department of Manufacturing and Civil Engineering, Norwegian University of Science and Technology, Norway

3. Department of Economics, National University of Singapore, Singapore

Abstract

<p>By introducing time to build, which creates a time-lag between government investment and the accumulation of productive capital, into an analysis of fiscal stimulus to the economy with financial frictions, we find that the effectiveness of fiscal policy is dampened. While the weakening effects of time to build become significantly weaker alongside with a higher fraction of government bonds allocated to leverage-constrained banks, which can be explained by a high correlation between time to build and financial frictions in both worsening balance sheet conditions of banks. Furthermore, the stimulus effects of public investment become stronger associated with shorter time-to-build period.</p>

Publisher

Anser Press Pte. Ltd.

Link

https://www.anserpress.org/journal/fel/1/1/3/pdf

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