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Credit policies, macroeconomic stability and welfare: The case of China

Raoul Minetti and Tao Peng

Journal of Comparative Economics, 2018, vol. 46, issue 1, 35-52

Abstract: Using a new Keynesian DSGE model with credit constraints, we study the impact on macroeconomic volatility of a macroprudential credit policy of the type implemented by the Central Bank of China. We find that the countercyclical credit policy plays a non-negligible role in stabilizing the real economy, and that this effect is distinctly more pronounced when credit conditions are looser. By means of a second-order approximation method, we show that the macroprudential credit policy can significantly boost welfare, benefiting the entrepreneurial sector more than the household sector. The results can yield insights for the institutional and policy setting of China and other emerging countries.

Keywords: Credit policy; Macroeconomic volatility; Welfare (search for similar items in EconPapers)
JEL-codes: E32 E44 E58 (search for similar items in EconPapers)
Date: 2018
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