Financial Distortions in China: A General Equilibrium Approach

32 Pages Posted: 17 Feb 2016

See all articles by Diego Anzoategui

Diego Anzoategui

Rutgers University

Mali Chivakul

International Monetary Fund (IMF)

Wojciech S. Maliszewski

London School of Economics & Political Science (LSE) - Department of Economics

Date Written: December 2015

Abstract

Widespread implicit guarantees and interest ceilings were major distortions in China's financial system, contributing to a misallocation of resources. We analyze the impact of removing such frictions in a general equilibrium setting. The results show that comprehensive reforms generate better outcomes than partial ones: removing the deposit rate ceiling alone increases output, but the efficiency of capital allocation does not improve. Removing implicit guarantees improves output through lower cost of capital for private companies and better resource allocation.

Keywords: Financial distortions, interest rate liberalization, implicit government guarantees, interest, guarantees, deposit, implicit guarantees, deposits, General, Asia including Middle East, Government Policy and Regulation,

JEL Classification: D50, E43, N15, G28

Suggested Citation

Anzoategui, Diego and Chivakul, Mali and Maliszewski, Wojciech S., Financial Distortions in China: A General Equilibrium Approach (December 2015). IMF Working Paper No. 15/274, Available at SSRN: https://ssrn.com/abstract=2733579

Diego Anzoategui (Contact Author)

Rutgers University ( email )

New Brunswick, NJ
United States

Mali Chivakul

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Wojciech S. Maliszewski

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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