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Banking and the Macroeconomy in China: A Banking Crisis Deferred?

Open Economies Review, ISSN: 0923-7992, Vol: 25, Issue: 1, Page: 123-161
2014
  • 14
    Citations
  • 0
    Usage
  • 23
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    14
    • Citation Indexes
      12
    • Policy Citations
      2
      • 2
  • Captures
    23

Article Description

The 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 fitted 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. © 2014 Springer Science+Business Media New York.

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