creator Liu, Zheng 20669 creator Wang, Pengfei 20947 creator Xu, Zhiwei 20949 <p>We study the consequences of interest-rate liberalization in a two-sector general equilibrium model of China. The model captures a key feature of China's distorted financial system: state-owned enterprises (SOEs) have greater incentive to expand production and easier access to credit than private firms. In this second-best environment, interest-rate liberalization can improve capital allocations within each sector, but can also exacerbate misallocations across sectors. Under calibrated parameters, the liberalization policy can reduce aggregate productivity and welfare unless other policy reforms are also implemented to alleviate SOEs' distorted incentives or improve private firms' credit access.</p> eng Working Paper 2017-15 10.24148/wp2017-15 Revised multipart 2020-01-28 January 28, 2020 639526 2026-02-10 09:32:53 2023-07-19 10:42:27 item pb2017-15 7039 7038 creator Federal Reserve Bank of San Francisco 522 E44 G18 O41 text

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