Contribution of the Optimization of Financial Structure to the Real Economy: Evidence from China’s Financial System Using TVP-VAR Model

Xiaoye Liu, Kedong Yin and Yun Cao
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Xiaoye Liu: School of Economics, Ocean University of China, Qingdao 266100, China
Kedong Yin: School of Management Science and Engineering, Shandong University of Finance and Economics, Jinan 250014, China
Yun Cao: School of Economics, Ocean University of China, Qingdao 266100, China

Mathematics, 2021, vol. 9, issue 18, 1-21

Abstract: How the financial structure promotes the development of real economy has always been a research topic in academia. By analyzing the characteristics of China’s financial system, this paper constructs the Finance Structure Index (FSI) from the perspectives of structural efficiency, financing structure and industry structure, and interprets the trend of the FSI. Based on the quarterly data of China from 2004 to 2020, this paper constructs a time-varying parameter-vector autoregression (TVP-VAR) model to study the dynamic impact of finance structure on the growth and optimization of the structure of the real economy. The empirical analysis results show that the response of the real economy has time-varying characteristics. Early on, financial structure has a promotion effect on the scale of the real economy, but the impact on the structure is not clear. In the middle, the effect of promoting the scale decreases slightly and then rebounds rapidly, while the optimization of the structure is inhibited. Later, it has a significant promoting effect and an obvious time-lag effect. Moreover, the impact of the financial structure is unstable. It is necessary to improve the efficiency and quality of the transmission of the optimization of the financial structure to the real economy.

Keywords: finance structure index; scale of real economy; structure of real economy; time-varying characteristics; TVP-VAR model (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
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