Boosting public investment in developing economies sparks long-term growth surge
The article explores how a developing economy can benefit from a golden rule of public finance with an active monetary policy. By using a complex model, the researchers found that increasing government spending can boost long-term growth, but may crowd out private consumption and investment in the short term. This is especially important for economies with low efficiency and high returns to public capital. To manage debt accumulation from increased public investment, the central bank needs to consider more than just inflation and output fluctuations.