Analysis on the Macroeconomic Effects of Public Investment in Pandemic Recovery

Abstract

This study used the Bayesian methodology to estimate and calibrate a small-scale DSGE model of the Philippines. The goal of this study was to review the risk associated with increases in sovereign deficits. The major results of the study are: Estimates of fiscal rules show that fiscal authority provides more emphasis on debt to GDP than output and deficits. In addition, the stochastic simulation shows that increases in public investment don't limit increases in private investment. And both public and private investment exhibit procyclical behaviors in presence of government spending shock. Lastly, the output is more persistent during episodes of technology shocks than on an increase in government spending. The paper also shows that there is no significant difference in result between the fiscal authority’s alternative fiscal rules of responding on levels of deficits and debt or levels of deficits and debt from its target.