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Credit Market Imperfection and Sectoral Asymmetry of Chinese Business Cycle

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  • Yuanyan S Zhang

Abstract

This paper analyzes the role of credit market imperfection and sectoral asymmetry as a means through which shocks to the real economy are propagated and amplified. Drawing on firm-level data to calibrate the model, our simulations capture two key stylized facts of the Chinese economy: that credit constraints are more binding in nontradable sectors than in tradable industries and that output volatility is much greater in China than in industrial economies. We find that the driving force behind our simulation results is strongly related to the non-uniform nature of credit market imperfections in China and their implications for resource allocation and the way in which the economy reacts to shocks. Correctly capturing these macro-financial interactions are essential to understand the dynamic behavior of the Chinese economy.

Suggested Citation

  • Yuanyan S Zhang, 2011. "Credit Market Imperfection and Sectoral Asymmetry of Chinese Business Cycle," IMF Working Papers 11/118, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/118
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    References listed on IDEAS

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    Cited by:

    1. Fenech, Jean-Pierre & Yap, Ying Kai & Shafik, Salwa, 2014. "Can the Chinese banking system continue to grow without sacrificing loan quality?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 315-330.

    More about this item

    Keywords

    China; investment; exchange rate; credit market; business cycle; net worth; Credit Market Imperfection; Secoral Asymmetry; Macroeconomics And Monetary Economics; Macroeconomic Aspects Of International Trade And Finance;

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