We construct a Dynamic Stochastic General Equilibrium( DSGE) model to illustrate the transmission mechanism of the central bank policy rate in China based on Ma and Wang( 2014). Using a bank- centric financial system to characterize Chinese economy,our model qualitatively demonstrates and quantitatively simulates the transmission of a policy rate change to market rates,and then to the real economy,especially when various administrative restrictions and market frictions are in place. We prove that loan- to- deposit ratio restriction,loan quota,and high deposit reserve requirement ratio may weaken and even distort policy rate transmission. We also extend the dynamic model to estimate the efficiency loss of transmission mechanism due to business cycle factors. A key policy implication of this study is that China should gradually remove various quantitative restrictions and further reduce the deposit reserve requirement ratio,in order to improve the efficiency of interest rate transmission mechanism and facilitate the transition to the new monetary policy framework.
We analyze intergenerational redistribution in emerging economies with the aid of an overlapping generations model with endogenous labor supply. Growth is initially high but declines over time. A version of the model calibrated to China is used to analyze the welfare effects of alternative pension reforms. Although a reform of the current system is necessary to achieve financial sustainability, delaying its implementation implies large welfare gains for the (poorer) current generations, imposing only small costs on (richer) future generations. In contrast, a fully funded reform harms current generations, with small gains to future generations.
Resource misallocation lowers aggregate productive effi ciency. The existing literature often infers the magnitude of misallocation from the dispersion of average revenue products. However, the methodology is subject to several identification issues.
Starting in the late 1990s, China undertook a dramatic transformation of the large number of firms under state control. Small state-owned firms were privatized or closed. Large state-owned firms were corporatized and merged into large industrial groups under the control of the Chinese state. The state also created many new and large firms. We use detailed firm-level data to show that from 1998 to 2007, (i) state-owned firms that were closed were smaller and had low labor and capital productivity; (ii) the labor productivity of state-owned firms converged to that of private firms; (iii) the capital productivity of state-owned firms remained significantly lower than that of private firms; and (iv) total factor productivity (TFP) growth of state-owned firms was faster than that of private firms. We find the reforms of the state sector were responsible for 20 percent of aggregate TFP growth from 1998 to 2007.
We construct a Dynamic Stochastic General Equilibrium( DSGE) model to illustrate the transmission mechanism of the central bank policy rate in China based on Ma and Wang( 2014). Using a bank- centric financial system to characterize Chinese economy,our model qualitatively demonstrates and quantitatively simulates the transmission of a policy rate change to market rates,and then to the real economy,especially when various administrative restrictions and market frictions are in place. We prove that loan- to- deposit ratio restriction,loan quota,and high deposit reserve requirement ratio may weaken and even distort policy rate transmission. We also extend the dynamic model to estimate the efficiency loss of transmission mechanism due to business cycle factors. A key policy implication of this study is that China should gradually remove various quantitative restrictions and further reduce the deposit reserve requirement ratio,in order to improve the efficiency of interest rate transmission mechanism and facilitate the transition to the new monetary policy framework.
We analyze intergenerational redistribution in emerging economies with the aid of an overlapping generations model with endogenous labor supply. Growth is initially high but declines over time. A version of the model calibrated to China is used to analyze the welfare effects of alternative pension reforms. Although a reform of the current system is necessary to achieve financial sustainability, delaying its implementation implies large welfare gains for the (poorer) current generations, imposing only small costs on (richer) future generations. In contrast, a fully funded reform harms current generations, with small gains to future generations.
Resource misallocation lowers aggregate productive effi ciency. The existing literature often infers the magnitude of misallocation from the dispersion of average revenue products. However, the methodology is subject to several identification issues.
Starting in the late 1990s, China undertook a dramatic transformation of the large number of firms under state control. Small state-owned firms were privatized or closed. Large state-owned firms were corporatized and merged into large industrial groups under the control of the Chinese state. The state also created many new and large firms. We use detailed firm-level data to show that from 1998 to 2007, (i) state-owned firms that were closed were smaller and had low labor and capital productivity; (ii) the labor productivity of state-owned firms converged to that of private firms; (iii) the capital productivity of state-owned firms remained significantly lower than that of private firms; and (iv) total factor productivity (TFP) growth of state-owned firms was faster than that of private firms. We find the reforms of the state sector were responsible for 20 percent of aggregate TFP growth from 1998 to 2007.
