Revisiting China's gradualistic economic approach and financial market

Hao Li and Gaowang Wang

MPRA Paper from University Library of Munich, Germany

Abstract: We develop a model economy with active financial markets, in which the policymaker's adoption of a gradualistic approach is a Bayesian Nash equilibrium. In addition to its financing role, the financial market also creates a channel for information revelation, encouraging the policymaker to take small policy steps. Smaller policy steps lead to more precise information about the productivity shock. Acquiring more information - both on the extensive margin and the intensive margin - provides sufficient incentives for the policymaker to consistently follow the gradualistic approach. This result holds robust for both exogenous and endogenous information models.

Keywords: the gradualistic approach; active financial markets; information acquisition; endogenous information (search for similar items in EconPapers)
JEL-codes: G1 O2 (search for similar items in EconPapers)
Date: 2025-04-18
New Economics Papers: this item is included in nep-fdg and nep-gth
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