Interest-Rate Liberalization and Capital Misallocations

Liu, Zheng; Wang, Pengfei; Xu, Zhiwei

doi:10.24148/wp2017-15

Cited by 19 publications

(13 citation statements)

References 29 publications

(37 reference statements)

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“…Liberalization of the overall financial market has been slow in China. SeeLiu, Wang, and Xu (2017) for theoretical implications of interest rate liberalization on the Chinese economy. of investment in the stimulus package, real estate was listed as the number one area of focus and consequently received a significant amount of bank credit.22 A regime switch in monetary policy played the most conspicuous role in implementing the government's stimulus package.23 With our empirical framework we are able to separate a change in monetary policy from the effect of this change.…”

mentioning

confidence: 99%

Impacts of Monetary Stimulus on Credit Allocation and the Macroeconomy: Evidence from China

Chen

Higgins

Waggoner

et al. 2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: China monetary policy, as well as its transmission, is yet to be understood by researchers and policymakers. In the spirit of Taylor (1993Taylor ( , 2000, we develop a tractable framework that approximates practical monetary policy of China. The framework, grounded in relevant institutional elements, allows us to quantify the policy effects on output and prices. We find strong evidence that monetary policy is designed to support real GDP growth mandated by the central government while resisting inflation pressures and that contributions of monetary policy shocks to the GDP fluctuation are asymmetric across different states of the economy. These findings highlight the role of M2 growth as a primary instrument and the bank lending channel to investment as a key transmission mechanism for monetary policy. Our analysis sheds light on institutional constraints on a gradual transition from M2 growth to the nominal policy interest rate as a primary instrument for monetary policy. Terms of use: Documents in

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confidence: 99%

Impacts of Monetary Stimulus on Credit Allocation and the Macroeconomy: Evidence from China

Chen

Higgins

Waggoner

et al. 2016

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“…This would exacerbate capital misallocation to SOEs across sectors. 267 Figures show that the share of state-owned corporate loan borrowings in China have continued to increase between 2010 and 2016, from respectively 36% to 83%, while the private sector respectively represented 48% in 2010 and 11% in 2016. 268 Secondly, the PBOC already noted in its Quarterly Report of 2017 that "sound financial services will be delivered on a continuous basis for infrastructure construction and the upgrading and transformation of key areas and industries, such as railways and shipbuilding."…”

Section: Monetary and Financial Policiesmentioning

confidence: 99%

Report on China’s shipbuilding industry and policies affecting it

2021

OECD Science, Technology and Industry Policy Papers

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“…Our work is related to the economic development literature on capital misallocation under financial frictions (Midrigan and Xu, 2014;Moll, 2014;Buera and Shin, 2013;Liu et al, 2021).…”

Section: Related Literaturementioning

confidence: 99%

Turbulent Business Cycles

Dong¹,

Liu²,

Wang³

2021

ERWP

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Recessions are associated with sharp increases in turbulence that reshuffles firms' productivity rankings. To study the business cycle implications of turbulence shocks, we use Compustat data to construct a measure of turbulence based on the (inverse of) Spearman correlations of firms' productivity rankings between adjacent years. We document evidence that turbulence rises in recessions, reallocating labor and capital from highto low-productivity firms and reducing aggregate TFP and the stock market value of firms.A real business cycle model with heterogeneous firms and financial frictions can generate the observed macroeconomic and reallocation effects of turbulence. In the model, increased turbulence makes high-productivity firms less likely to remain productive, reducing their expected equity values and tightening their borrowing constraints relative to low-productivity firms. Thus, labor and capital are reallocated to low-productivity firms, reducing aggregate TFP and generating a recession with synchronized declines in aggregate output, consumption, investment, and labor hours, in line with empirical evidence.

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Interest-Rate Liberalization and Capital Misallocations

Cited by 19 publications

References 29 publications

Impacts of Monetary Stimulus on Credit Allocation and the Macroeconomy: Evidence from China

Impacts of Monetary Stimulus on Credit Allocation and the Macroeconomy: Evidence from China

Report on China’s shipbuilding industry and policies affecting it

Turbulent Business Cycles

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