Dynamic Efficiency Redux: Evidence from China
Year: 2025
Type: article
Abstract: Dynamic efficiency is an important concept in the analysis of consumption, asset pricing, and fiscal policies. Using an illustrative overlapping generations model, this study shows that when the interest rate is lower than the growth rate, active fiscal policy can increase both consumption and efficiency. It provides an integrated analysis using different interest rate metrics, comparing the risk‐free rate r f , returns on assets r e , and returns on capital r k with the growth rate g. The findings indicate that, in general, r f < g, g < r e , and g < r k . This condition suggests that fiscal policy can play a positive role in stimulating consumption. As the economy decelerates, the gap between r f and g continues to narrow. A state‐space model is also used to estimate China's natural interest rate r* and potential growth rate g*, showing that r* < g* and the gap between them has narrowed gradually over the past two decades.
Source: China & World Economy
DOI: 10.1111/cwe.12611
Authors: Feng Dong, Jinpu Li, Haoning Sun, Siqing Wang
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4414124134