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on China |
| By: | Fernald, John; Hsu, Eric; Spiegel, Mark M. |
| Abstract: | How reliable are China’s GDP and other data? We address this question by using trading partner exports to China as an independent measure of its economic activity from 2000–2014. We find that the information content of Chinese GDP improves markedly after 2008.We also consider a number of plausible, non-GDP indicators of economic activity that have been identified as alternative Chinese output measures. We find that activity factors based on the first principal component of sets of indicators are substantially more informative than GDP alone. The index that best matches activity in-sample uses four indicators: electricity, rail freight, an index of raw materials supply, and retail sales. Adding GDP to this group only modestly improves in-sample performance. Moreover, out of sample, a single activity factor without GDP proves the most reliable measure of economic activity. |
| Keywords: | China, GDP, principal components, structural break, forecasting |
| JEL: | C53 C82 E20 F17 |
| Date: | 2015–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:urn:nbn:fi:bof-201511031430&r=cna |
| By: | Funke, Michael; Mihaylovski, Petar; Zhu, Haibin |
| Abstract: | The paper sheds light on the interplay between monetary policy, the commercial banking sector and the shadow banking sector in mainland China by means of a nonlinear stochastic general equilibrium (DSGE) model with occasionally binding constraints. In particular, we analyze the impacts of interest rate liberalization on monetary policy transmission as well as the dynamics of the parallel shadow banking sector. Comparison of various interest rate liberalization scenarios reveals that monetary policy results in increased feed-through to the lending and investment under complete liberalization. Furthermore, tighter regulation of interest rates in the commercial banking sector in China leads to an increase in loans provided by the shadow banking sector. |
| Keywords: | DSGE model, monetary policy, financial market reform, shadow banking, China |
| JEL: | E32 E42 E52 E58 |
| Date: | 2015–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:urn:nbn:fi:bof-201503181118&r=cna |
| By: | Hasan, Iftekhar; Kobeissi, Nada; Wang, Haizhi; Zhou, Mingming |
| Abstract: | This paper provides an empirical examination of the regional banking structures in China and their effects on entrepreneurial activity. Using a panel of 27 provinces and four directly controlled municipalities from 1997 through 2008, we find that the presence of large banking institutions negatively correlates with small business development in local markets and that this negative relation is driven mainly by participation of large banks in the short-term loan market. Rural banking institutions, in contrast, are found to promote regional entrepreneurial activity. Moreover, large state banks facilitate small business development in concentrated markets. When we interact measures of banking financing by state banks and rural banking institutions with a set of provincial level marketization indexes, we find that extensive marketization, factor market development, and sophistication of legal frameworks mitigate the negative effect of large state banks on small business development. In provinces with advanced market development, efficient factor markets, and favorable institutional settings, the positive effect of rural banking institutions on small business growth is even stronger. Finally, we present evidence that banks do a better job of promoting regional entrepreneurship when it occurs in conjunction with policies to foster innovation activity and assure protection of intellectual property rights. |
| Keywords: | banking structure, marketization, small business development, China |
| JEL: | G21 O16 P23 P25 |
| Date: | 2015–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:urn:nbn:fi:bof-201504131154&r=cna |
| By: | Niu, Linlin; Xu, Xiu; Chen, Ying |
| Abstract: | We propose the use of a local autoregressive (LAR) model for adaptive estimation and forecasting of three of China’s key macroeconomic variables: GDP growth, inflation and the 7-day interbank lending rate. The approach takes into account possible structural changes in the data-generating process to select a local homogeneous interval for model estimation, and is particularly well-suited to a transition economy experiencing ongoing shifts in policy and structural adjustment. Our results indicate that the proposed method outperforms alternative models and forecast methods, especially for forecast horizons of 3 to 12 months. Our 1-quarter ahead adaptive forecasts even match the performance of the well-known CMRC Langrun survey forecast. The selected homogeneous intervals indicate gradual changes in growth of industrial production driven by constant evolution of the real economy in China, as well as abrupt changes in interestrate and inflation dynamics that capture monetary policy shifts. |
| Keywords: | Chinese economy, local parametric models, forecasting |
| JEL: | E43 E47 |
| Date: | 2015–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:urn:nbn:fi:bof-201504131155&r=cna |
| By: | Nuutilainen, Riikka |
| Abstract: | ​This paper focuses on monetary policy in China. A set of different specifications for the monetary policy reaction function are empirically evaluated using monthly data for 1999––2012. Variation is allowed both in the policy targets as well as in the monetary policy instrument itself. Overall, the performance of the estimated policy rules is surprisingly good. Chinese monetary policy displays countercyclical reactions to in‡ation and leaning-against-the-wind behaviour. The paper shows that there is a notable increase in the overall responsiveness of Chinese monetary policy over the course of the estimation period. The central bank interest rate is irresponsive to economic conditions during the earlier years of the sample but does respond in the later years. This finding supports the view that the monetary policy settings of the People's Bank of China have come to place more weight on price-based instruments. A time-varying estimation procedure suggests that the two monetary policy objectives are assigned to different instruments. The money supply instrument is utilised to control the price level and (after 2008) the interest rate instrument has been used to achieve the targeted output growth. |
| Keywords: | China, Monetary policy, Taylor rule, McCallum rule |
| JEL: | E52 E58 |
| Date: | 2015–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:urn:nbn:fi:bof-201503181119&r=cna |
| By: | Ling Feng; Zhiyuan Li; Deborah L. Swenson |
| Abstract: | This paper studies how reduction in trade policy uncertainty affects firm export decisions. Using a firm-product level dataset on Chinese exports to the United States and the European Union in the years surrounding China’s WTO accession, we provide strong evidence that reduction in trade policy uncertainty simultaneously induced firm entries to and firm exits from export activity within fine product-level markets. In addition, we uncover accompanying changes in export product prices and quality that coincided with this reallocation: firms that provided higher quality products at lower prices entered the export market, while firms that had higher prices and provided lower quality products prior to the changes, exited. To explain the simultaneous export entries and exits, as well as the change in product export prices and quality induced by trade policy uncertainty changes, we provide a model of heterogeneous firms which incorporates trade policy uncertainty, tracing the effects of the changes in policy uncertainty on firm-level payoffs and the resulting selection effects which apply to new entrants and incumbents. |
| JEL: | F13 F14 F23 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21985&r=cna |
| By: | Wang, Haining; Cheng, Zhiming; Smyth, Russell |
| Abstract: | This study examines the relationship between consumption and happiness, using panel data from China Family Panel Studies (CFPS). We find that total consumption expenditure has a significant and positive effect on happiness, but we find no evidence of a non-linear relationship between consumption and happiness. There are heterogeneous effects of consumption on happiness across subsamples and for different types of consumption expenditure. We find that relative consumption matters, irrespective if the reference group is de-fined in terms of consumption at the community or county level or on the basis of age, education and gender. However, the extent to which comparison effects are upward looking, or asymmetric, depend on how the comparison group is defined. We also find that comparison with one’s past consumption has no significant effect on an individual’s happiness. |
| Keywords: | happiness, consumption, China |
| JEL: | A13 E21 I31 N35 |
| Date: | 2015–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:urn:nbn:fi:bof-201508181355&r=cna |
| By: | John Knight; Deng Quheng; Li Shi |
| Abstract: | In the decade 1998-2008 China expanded enrolment in higher education almost six-fold. For the examination of its short term labour market consequences, this unprecedentedly huge and sudden policy change might be regarded as a natural experiment. After providing a theoretical framework for analysis, the paper uses urban labour market surveys to analyse how the labour market adjusted to the supply shock. Three outcomes are examined: the effect of the expansion on wages, on unemployment, and on access to ‘good jobs’. The shock is found to reduce relative wages, raise the unemployment rate, and reduce the proportion in good jobs, but only for the entry-year or entry-period cohort of graduates. The effect is fairly powerful for entrants, especially university rather than college graduates, but incumbent graduates are largely protected from the supply shock. An attempt is made to examine the labour market effects of the quantitative expansion on educational quality. The paper provides insight into the operation of China’s labour market in recent years. |
| Keywords: | China; cohort effects; graduate unemployment; higher education; labour market; returns to higher education |
| JEL: | I21 I23 J24 J31 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:2016-04&r=cna |
| By: | Juan Carlos Suárez Serrato; Xiao Yu Wang; Shuang Zhang |
| Abstract: | We study the implementation of the One Child Policy to test whether the promotions of mayors were meritocratic. We model the incentive design of provincial governments that evaluate mayors using self-reported performance. We relate the desire to maximize output while promoting high-ability mayors to equilibrium incentives, and derive testable predictions. Our empirical comparative statics are consistent with meritocracy. We then evaluate the screening efficacy and test for misreporting using retrospective birth rates. We find that, while promotions were meritocratic, misreporting sapped the effectiveness of the meritocracy, contradicting the belief that meritocratic promotions enabled China’s development despite lacking democratic accountability. |
| JEL: | D23 D73 D86 M12 M51 O12 O15 O53 P23 P26 P48 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21963&r=cna |
| By: | Gros, Daniel |
| Abstract: | Against the background of the severe turbulence that is hitting global stock markets, Daniel Gros examines the looming slowdown in the Chinese economy in this CEPS Commentary, which he attributes to an underlying ‘real’ domestic investment/savings imbalance. Given the magnitude of this imbalance, Gros thinks it is unlikely to be solved by monetary policy and that the best that can be hoped for is that the central banks will manage to ‘paper over’ some of the unavoidable symptoms in credit markets. |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:eps:cepswp:10861&r=cna |
| By: | Chen Lin; Randall Morck; Bernard Yeung; Xiaofeng Zhao |
| Abstract: | Chinese share prices rose sharply on the Politburo’s Dec. 4th 2012 announcement of its Eight-point Regulation, an uncharacteristically detailed and concrete Party policy, initiating an extensive anti-corruption campaign and announced surprisingly soon after a change in leadership. The reaction is uniformly positive for state-owned enterprises (SOEs), but heterogeneous across non-SOEs. The reaction is more positive for non-SOEs in provinces with more developed market institutions and with higher prior productivity, greater external financing dependence, and greater growth potential. A non-SOE’s prior spending on entertainment and travel costs (ETC), a proxy for investment in “connections”, correlates negatively with the share price changes of firms based in provinces with weak market institutions. We posit that limiting corruption cuts the valuations of these non-SOEs by limiting their ability to utilize “connections” where these are more important. SOEs are well-connected in any case, and their ETC may reflect their top insiders’ perks consumption or self-dealing. Reforms that limit this boost SOEs’ valuations. Overall, these results are consistent with investors expecting the reforms to be meaningful and limiting corruption to be more valuable if prior reforms have strengthened market forces. |
| JEL: | D70 G34 G38 P2 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22001&r=cna |
| By: | Barslund, Mikkel; Alcidi, Cinzia |
| Abstract: | Notwithstanding the erratic stock market responses around the world, this CEPS Commentary argues that while a slowdown of the world’s second-largest economy may not be good news for Europe, its effects will not be as bad as headlines would have us believe. In the short term, it finds that the biggest risks from the Chinese slowdown may be political, stemming from a weakening of the Renminbi, either from actions taken by China’s central bank and/or from large capital outflows. |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:eps:cepswp:10960&r=cna |
| By: | Bulent Unel |
| Abstract: | This paper develops a two-sector small open economy model of offshoring where product markets are perfectly competitive, but capital and labor markets exhibit frictions. Individuals differ with respect to their managerial ability, and choose to become entrepreneurs or workers depending on profit opportunities and labor market conditions. The model generates three groups: low-income workers facing the prospect of unemployment; middle-income entrepreneurs producing domestically; and high-income entrepreneurs offshoring some tasks abroad. Lowering financial frictions induces more individuals to become entrepreneurs, increases the masses of offshoring firms and tasks, and improves personal income and welfare distribution. It reduces unemployment when tasks are less substitutable and labor share in production is high. The paper also investigates the impact of reducing offshoring costs and labor market frictions on the mass of entrepreneurs, decision to offshore, income distribution, and unemployment. |
| URL: | http://d.repec.org/n?u=RePEc:lsu:lsuwpp:2016-03&r=cna |