Working Paper: NBER ID: w25222
Authors: Kaiji Chen; Tao Zha
Abstract: The Chinese economy has undergone three major phases: the 1978-1997 period marked as the SOE-led economy, the 1998-2015 phase as the investment-driven economy, and the new normal economy since 2016. All three economies have been shaped by the government's financial policies, defined as a set of credit policy, monetary policy, and regulatory policy. We analyze the macroeconomic effects of these financial policies throughout the three phases and provide the stylized facts to substantiate our analysis. The stylized facts differ qualitatively across different phases or economies. We argue that the impacts of China’s financial policies work through transmission channels different from those in developed economies and that a regime switch from one economy to another was driven mainly by regime changes in financial policies.
Keywords: China; Financial Policies; Macroeconomics
JEL Codes: E5; G1; G28; O2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| China's financial policies (F38) | investment growth (E20) |
| China's financial policies (F38) | consumption growth (E20) |
| investment growth (E20) | fluctuations in real GDP (E32) |
| consumption growth (E20) | fluctuations in real GDP (E32) |
| shift to investment-driven economy (E22) | breakdown of correlation between investment and consumption growth (E20) |
| 2009 monetary stimulus (E63) | significant increase in GDP growth (O49) |
| aggressive credit allocation (E51) | long-term indebtedness issues (F34) |