IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v107y2017i5p608-13.html
   My bibliography  Save this article

China's Gradualistic Economic Approach and Financial Markets

Author

Listed:
  • Markus K. Brunnermeier
  • Michael Sockin
  • Wei Xiong

Abstract

China's gradualistic approach allowed the government to learn how the economy reacts to small policy changes, and to adjust its reforms before implementing them in full. With fully developed financial markets, however, private actors may front-run future policy changes, making it impossible to implement policies gradually. With financial markets, the government faces a time-inconsistency problem. The government would like to commit to a gradualistic approach, but after it observes the economy's quick reaction, it has no incentive to implement its policies in small steps.

Suggested Citation

  • Markus K. Brunnermeier & Michael Sockin & Wei Xiong, 2017. "China's Gradualistic Economic Approach and Financial Markets," American Economic Review, American Economic Association, vol. 107(5), pages 608-613, May.
    • Handle: RePEc:aea:aecrev:v:107:y:2017:i:5:p:608-13
    Note: DOI: 10.1257/aer.p20171035
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/articles?id=10.1257/aer.p20171035
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/attachments?retrieve=Wu5qIDjJRq9G6iSW_kbtY_F4rHNxXyGC
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Yi Huang & Marco Pagano & Ugo Panizza, 2016. "Public Debt and Private Firm Funding: Evidence from Chinese Cities," IHEID Working Papers 10-2016, Economics Section, The Graduate Institute of International Studies, revised Aug 2016.
    2. Chen, Zhuo & He, Zhiguo & Liu, Chun, 2020. "The financing of local government in China: Stimulus loan wanes and shadow banking waxes," Journal of Financial Economics, Elsevier, vol. 137(1), pages 42-71.
    3. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    4. Yi Huang & Marco Pagano & Ugo Panizza, 2020. "Local Crowding‐Out in China," Journal of Finance, American Finance Association, vol. 75(6), pages 2855-2898, December.
    5. Chong-En Bai & Chang-Tai Hsieh & Zheng Michael Song, 2016. "The Long Shadow of a Fiscal Expansion," NBER Working Papers 22801, National Bureau of Economic Research, Inc.
    6. Tao Zha & Jue Ren & Kaiji Chen, 2016. "What We Learn from China's Rising Shadow Banking: Exploring the Nexus of Monetary Tightening and Banks' Role in Entrusted Lending," 2016 Meeting Papers 82, Society for Economic Dynamics.
    7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Huang, Yi & Panizza, Ugo & Portes, Richard, 2024. "Corporate foreign bond issuance and interfirm loans in China," Journal of International Economics, Elsevier, vol. 152(C).
    2. Randall Morck & Bernard Yeung, 2017. "East Asian Financial and Economic Development," Working Papers id:12112, eSocialSciences.
    3. Franklin Allen & Xian Gu, 2021. "Shadow banking in China compared to other countries," Manchester School, University of Manchester, vol. 89(5), pages 407-419, September.
    4. Mo, Guiqing & Gao, Zhi & Zhou, Lei, 2021. "China's no-bailout reform: Impact on bond yields and rating standards," Journal of Banking & Finance, Elsevier, vol. 133(C).
    5. Urban J. Jermann & Bin Wei & Vivian Z. Yue, 2022. "The Two‐Pillar Policy for the RMB," Journal of Finance, American Finance Association, vol. 77(6), pages 3093-3140, December.
    6. Chan, Kalok & Wang, Baolian & Yang, Zhishu, 2019. "Why investors do not buy cheaper securities: Evidence from a natural experiment," Journal of Banking & Finance, Elsevier, vol. 101(C), pages 59-76.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Zhuo & He, Zhiguo & Liu, Chun, 2020. "The financing of local government in China: Stimulus loan wanes and shadow banking waxes," Journal of Financial Economics, Elsevier, vol. 137(1), pages 42-71.
    2. Song, Zheng (Michael) & Xiong, Wei, 2018. "Risks in China's financial system," BOFIT Discussion Papers 1/2018, Bank of Finland Institute for Emerging Economies (BOFIT).
    3. Song, Zheng (Michael) & Xiong, Wei, 2018. "Risks in China’s financial system," BOFIT Discussion Papers 1/2018, Bank of Finland, Institute for Economies in Transition.
    4. repec:zbw:bofitp:2018_001 is not listed on IDEAS
    5. Zhang, Min & Zhang, Yahong, 2022. "Monetary stimulus policy in China: The bank credit channel," China Economic Review, Elsevier, vol. 74(C).
    6. Yi Huang & Marco Pagano & Ugo Panizza, 2020. "Local Crowding‐Out in China," Journal of Finance, American Finance Association, vol. 75(6), pages 2855-2898, December.
    7. Chen, Zhuo & He, Zhiguo & Liu, Chun, 2018. "The Financing of Local Government in the People’s Republic of China: Stimulus Loan Wanes and Shadow Banking Waxes," ADBI Working Papers 800, Asian Development Bank Institute.
    8. Guonan Ma & Jinzhao Chen, 2019. "The Role of Internally Financed Capex in Rising Chinese Corporate Debts," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(3), pages 413-442, September.
    9. Huang, Yi & Panizza, Ugo & Portes, Richard, 2024. "Corporate foreign bond issuance and interfirm loans in China," Journal of International Economics, Elsevier, vol. 152(C).
    10. Jingzhu Chen & Yuemei Ji, 2022. "Is Finance Good for Growth? New Evidence from China," CESifo Working Paper Series 9882, CESifo.
    11. Wang, He & Yao, Yang & Zhou, Yue, 2022. "Markets price politicians: Evidence from China’s municipal bond markets," Journal of Economics and Business, Elsevier, vol. 122(C).
    12. Yu, Li & Lyu, Zhuoyang & Duan, Hao, 2024. "Plugging the gap: Debt pressure and the rise of forfeiture revenues in local governments," Finance Research Letters, Elsevier, vol. 61(C).
    13. Liu, Yan & Wu, Guowei & Xiong, Chen, 2024. "Countercyclical central government transfers incentivize local government overborrowing: Theory and evidence," Economic Modelling, Elsevier, vol. 132(C).
    14. Kaiji Chen & Haoyu Gao & Patrick Higgins & Daniel F. Waggoner & Tao Zha, 2023. "Monetary Stimulus amidst the Infrastructure Investment Spree: Evidence from China's Loan‐Level Data," Journal of Finance, American Finance Association, vol. 78(2), pages 1147-1204, April.
    15. Wang, Jiaxin & Huang, Xiang & Gu, Qiankun & Song, Zilong & Sun, Ruiyi, 2023. "How does fintech affect bank risk? A perspective based on financialized transfer of government implicit debt risk," Economic Modelling, Elsevier, vol. 128(C).
    16. Zhu, Xiaodong, 2021. "The varying shadow of China's banking system," Journal of Comparative Economics, Elsevier, vol. 49(1), pages 135-146.
    17. Francesco D'Acunto & Michael Weber & Jin Xie & Michael Weber, 2019. "Punish One, Teach A Hundred: The Sobering Effect of Punishment on the Unpunished," CESifo Working Paper Series 7512, CESifo.
    18. Deng, Jiapin & Liu, Qiao, 2024. "Good finance, bad finance, and resource misallocation: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 159(C).
    19. Gu, Yanwei & Guo, Jing & Liang, Xiao & Zhao, Yajun, 2022. "Does the debt-growth link differ across private and public debt? Evidence from China," Economic Modelling, Elsevier, vol. 114(C).
    20. Yu, Siming & Kang, Wan & Wenjun, Liu & Wang, Deli & Zheng, Jieying & Dong, Boyan, 2024. "The crowding out effect of local government debt expansion: Insights from commercial credit financing," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 858-872.
    21. Wang, Yabin & Wu, Sharon Xiaohui, 2023. "Local guarantees and SOE bond pricing in China," China Economic Review, Elsevier, vol. 78(C).

    More about this item

    JEL classification:

    • 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
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:107:y:2017:i:5:p:608-13. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.