Banking and the Macroeconomy in China: A Banking Crisis Deferred?
AbstractThe downturn in the world economy following the global banking crisis has left the Chinese economy relatively unscathed. This paper develops a model of the Chinese economy using a DSGE framework with a banking sector to shed light on this episode. It differs from other applications in the use of indirect inference procedure to test the ?tted model. The model finds that the main shocks hitting China in the crisis were international and that domestic banking shocks were unimportant. However, directed bank lending and direct government spending was used to supplement monetary policy to aggressively offset shocks to demand. The model finds that government expenditure feedback reduces the frequency of a business cycle crisis but that any feedback effect on investment creates excess capacity and instability in output.
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Bibliographic InfoPaper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2013/5.
Length: 34 pages
Date of creation: Apr 2013
Date of revision:
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Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers
More information through EDIRC
DSGE model; Financial Frictions; China; Crises; Indirect Inference;
Other versions of this item:
- Le, Vo Phuong Mai & Matthews, Kent & Meenagh, David & Minford, Patrick & Xiao, Zhiguo, 2013. "Banking and the Macroeconomy in China: A Banking Crisis Deferred?," CEPR Discussion Papers 9422, C.E.P.R. Discussion Papers.
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-05 (All new papers)
- NEP-DGE-2013-05-05 (Dynamic General Equilibrium)
- NEP-MAC-2013-05-05 (Macroeconomics)
- NEP-MON-2013-05-05 (Monetary Economics)
- NEP-TRA-2013-05-05 (Transition Economics)
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