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China’s financial crisis: the role of banks and monetary policy

Le, Vo Phuong Mai, Matthews, Kent, Meenagh, David, Minford, Patrick and Xiao, Zhiguo 2015. China’s financial crisis: the role of banks and monetary policy. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University.

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Abstract

This paper develops a model of the Chinese economy using a DSGE framework that accommodates a banking sector and money. The model is used to shed light on the period of the recent period of financial crisis. It differs from other applications in the use of indirect inference to estimate and test the fitted model. We find that the main shocks that hit China in the crisis were international and that domestic banking shocks were unimportant. Officially mandated bank lending and government spending were used to supplement monetary policy to aggressively offset shocks to demand. An analysis of the frequency of crises shows that crises occur on average about every halfcentury, with about a third accompanied by financial crises. We find that monetary policy can be used more vigorously to stabilise the economy, making direct banking controls and fiscal activism unnecessary.

Item Type: Monograph (Working Paper)
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
Publisher: Cardiff University
Date of First Compliant Deposit: 30 March 2016
Last Modified: 21 Jan 2019 23:08
URI: http://orca.cf.ac.uk/id/eprint/78026

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