Financial Distortions in China: A General Equilibrium Approach

Diego Anzoategui, Mali Chivakul and Wojciech Maliszewski

No 2015/274, IMF Working Papers from International Monetary Fund

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: WP; Financial distortions; interest rate liberalization; implicit government guarantees; China; lending interest rate; cost of funds; deposit interest rate liberalization; deposit interest rate ceiling; bank depositor; deposit ceiling; equilibrium interest rate; deposit interest ceiling; interest rate controls-is; SOE sector; liberalizing deposit interest rate; Deposit rates; Interest rate ceilings; Credit; Commercial banks; Total factor productivity; Global (search for similar items in EconPapers)
Pages: 31
Date: 2015-12-24
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Citations: View citations in EconPapers (9)

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