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

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.

• Understand the basics of dynamic macroeconomic models for analyzing public investment scale-ups, growth, and debt dynamics.
• Understand the key elements of the DIG and the DIGNAR models.
• Understand how these models are used to analyze how the macroeconomic effects of public investment surges depend on policy responses, type of financing of these surges (e.g., taxes and domestic versus external financing), and structural factors (e.g., the efficiency of public investment).
• Interpret the output of policy scenario analyses using the DIG and DIGNAR models, as reflected in official IMF documents such as Art. IV reports.