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Revisiting China's gradualistic economic approach and financial market

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  • LI, Hao
  • Wang, Gaowang

Abstract

We develop a model economy with active financial markets, in which the policymaker's adoption of a gradualistic approach is a Bayesian Nash equilibrium. In addition to its financing role, the financial market also creates a channel for information revelation, encouraging the policymaker to take small policy steps. Smaller policy steps lead to more precise information about the productivity shock. Acquiring more information - both on the extensive margin and the intensive margin - provides sufficient incentives for the policymaker to consistently follow the gradualistic approach. This result holds robust for both exogenous and endogenous information models.

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  • LI, Hao & Wang, Gaowang, 2025. "Revisiting China's gradualistic economic approach and financial market," MPRA Paper 124455, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:124455
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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