China's Gradualistic Economic Approach and Financial Markets
American Economic Review
vol. 107,
no. 5, May 2017
(pp. 608-13)
Abstract
China's gradualistic approach allowed the government to learn how the economy reacts to small policy changes, and to adjust its reforms before implementing them in full. With fully developed financial markets, however, private actors may front-run future policy changes, making it impossible to implement policies gradually. With financial markets, the government faces a time-inconsistency problem. The government would like to commit to a gradualistic approach, but after it observes the economy's quick reaction, it has no incentive to implement its policies in small steps.Citation
Brunnermeier, Markus K., Michael Sockin, and Wei Xiong. 2017. "China's Gradualistic Economic Approach and Financial Markets." American Economic Review, 107 (5): 608-13. DOI: 10.1257/aer.p20171035Additional Materials
JEL Classification
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- E62 Fiscal Policy
- G01 Financial Crises
- G28 Financial Institutions and Services: Government Policy and Regulation
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- P34 Socialist Institutions and Their Transitions: Financial Economics