China's Model of Managing the Financial System
Markus Brunnermeier (),
Michael Sockin and
Wei Xiong ()
No 27171, NBER Working Papers from National Bureau of Economic Research, Inc
China's economic model involves active government intervention in financial markets. We develop a theoretical framework in which interventions prevent a market breakdown and a volatility explosion caused by the reluctance of short-term investors to trade against noise traders. In the presence of information frictions, the government can alter market dynamics since the noise in its intervention program becomes an additional factor driving asset prices. More importantly, this may divert investor attention away from fundamentals and totally toward government interventions (as a result of complementarity in investors' information acquisition). A trade-off arises: government's objective to reduce asset price volatility may worsen, rather than improve, information efficiency of asset prices.
JEL-codes: G01 G14 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-ifn and nep-tra
Note: AP CF IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:27171
Ordering information: This working paper can be ordered from
The price is Paper copy available by mail.
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().