The Macro-effect Of Government Productive Expenditure

A dynamic stochastic general equilibrium model with price sticky can yield a fairlygood simulation of characteristics of Chinese business cycles due to adding governmentproductive expenditure and capital utilization to the DSGE model. Numerical simulationof the model shows that the output elasticity of government productive expenditure aswell as the coefficient of government shock plays a key role in describing the dynamiccharacteristics of business cycle. On one hand, excessive output elasticity of governmentproductive expenditure not only squeeze out households consumption, but also lead toexcess production capacity. On the other hand, large coefficient of government shockalso squeeze out households consumption. The output elasticity of governmentproductive expenditure and the coefficient of government shock should be in areasonable range, resulting in squeezing into households consumption and eliminatingexcess production capacity.