Structural Consequences of Aggregate Demand Management Policy Mixes

Expenditure structure, industrial structure and some other key economic indicators of Chinese economy have experienced turning changes since the second decade of 21^st century. As for China's aggregate demand management, the investment stimulus implemented by local government has played a more prominent role than the interest rate policy and conventional fiscal policy. We set up a macroeconomic model with the above mentioned Chinese characteristic to analyze the impacts of the interest rate policy and local government investment stimulus on aggregate demand, and display the consequent variations in structural indicators such as the debt leverage, proportion of private investment and consumption rate. Our main finding is that China would achieve a lower debt leverage ratio, higher proportion of private investment and household consumption while effectively stimulating the aggregate demand once the authorities implement a more active interest rate policy rather than the local government investment stimulus.