Public Debt, Investment, and Growth: The DIG and DIGNAR Models

Overview

Over the past decade, the DIG and DIGNAR models have gained wide acceptance for policy work. They have complemented the analyses done with the IMF and World Bank Debt Sustainability Framework, with over 65 country applications in the context of Fund-supported programs and surveillance work. They have helped inform policy analysis, based on qualitative and quantitative scenario analyses, on issues not only related to public investment surges but also to fiscal consolidations, cash transfers to poor households, the mix of public current and capital expenditures, the efficiency of public spending and tax administration, and the collapse of commodity prices, among others. The course will illustrate some of these applications and explain how to interpret the output of these policy scenario analyses.

Taught by

Giovanni Melina and Felipe Zanna

Reviews

4.0 rating, based on 1 Class Central review

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Kohei I @Kohei

This excellent course taught the interaction between macroeconomics and policy, by using simulations. The DIG model captures the effects of a surge in public investment on growth and public debt. For example, it showed that external borrowing to f…

This excellent course taught the interaction between macroeconomics and policy, by using simulations.

The DIG model captures the effects of a surge in public investment on growth and public debt. For example, it showed that external borrowing to finance public investment would be more supportive to economic growth in the short run, compared to a tax hike without a cap or domestic borrowing. On the hand, the DIGNAR model is an extension of the DIG model by adding the natural resource sector. This model is used to draw interesting policy implications on the sovereign fund management.

The focus of the course was on how to read simulation results. After explaining the framework of the models, the course uses charts extensively to explain the interaction between public investment, growth, and the fiscal policy response. The instructors did an excellent work in presenting the material without relying on advanced mathematics. Economic jargons were also well explained in the context using plain English.

One of the problems with the course was the limited discussion on the forum. I had no response from the staff after raising a question.

Overall, I have learned a lot about the interaction the economy and policy. So, this short course is highly recommended to anyone interested in macroeconomics and policy.

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