Credit Market Imperfection and Sectoral Asymmetry of Chinese Business Cycle

Yuanyan Zhang

No 2011/118, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the role of credit market imperfection and sectoral asymmetry as a means through which shocks to the real economy are propagated and amplified. Drawing on firm-level data to calibrate the model, our simulations capture two key stylized facts of the Chinese economy: that credit constraints are more binding in nontradable sectors than in tradable industries and that output volatility is much greater in China than in industrial economies. We find that the driving force behind our simulation results is strongly related to the non-uniform nature of credit market imperfections in China and their implications for resource allocation and the way in which the economy reacts to shocks. Correctly capturing these macro-financial interactions are essential to understand the dynamic behavior of the Chinese economy.

Keywords: WP; credit market; exchange rate; business cycle; working capital; credit constraint; n sector firm; investment decision; firm size; firm Level evidence; Credit; Real exchange rates; Bank credit; Business cycles; Financial statements (search for similar items in EconPapers)
Pages: 35
Date: 2011-05-01
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Citations: View citations in EconPapers (1)

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