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Interest-Rate Liberalization and Capital Misallocations : Data [Part 1], Working Paper 2017-15

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Interest-Rate Liberalization and Capital Misallocations : Data [Part 1], Working Paper 2017-15

DATE: January 28, 2020

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ABSTRACT:

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.

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Federal Reserve Bank of San Francisco. "Interest-Rate Liberalization and Capital Misallocations : Data [Part 1], Working Paper 2017-15" in Working Papers (Federal Reserve Bank of San Francisco) (January 28, 2020). https://fraser.stlouisfed.org/title/7038/item/639526/content/zip/frbsf_pacificBasin_wp2017-15_data_part1, accessed on March 20, 2025.

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EDITION: Revised

SUBJECTS: THEMES: RELATED ITEM: CLASSIFICATION:
  • jel: E44
  • jel: G18
  • jel: O41
IDENTIFIER:
  • doi: 10.24148/wp2017-15
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