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Essays on Money and Finance: Evidence for China

Huang, Jiajin

Volkswirtschaftliche Schriften, Vol. 571

(2019)

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About The Author

Jiajin Huang got his PhD in Goethe University in Frankfurt, Germany, and is now working for a Chinese official think-tank in Shanghai. His main research interests focus on monetary and financial issues regarding China´s Economy.

Abstract

This book investigates and resolves some financial and monetary questions regarding Chinese economy. The first chapter examines the role of informal financing in China using a firm-level dataset of manufacture industry, and finds that low-risk informal finance exerts a positive effect on firms’ performance. The second and third chapter focus on the measurement and effect of Chinese monetary policy. The autor establishes a new index by using a state space method, reflecting changes in various monetary instruments, which has both theoretical and empirical advantages. Then he investigates the effect of China‘s monetary policy shocks on its close trading partners in developing Asia with the GVAR method. China’s influence has highly expanded even by monetary policy perspective.

Table of Contents

Section Title Page Action Price
Preface 5
Table of Contents 7
List of Tables 9
Table 1.1: Actual Funds for Investment in Fixed Assets Across the Whole Country (100 Million RMB) 18
Table 1.2: Statistics on Social Financing and its Composition (100 Million RMB) 20
Table 1.3: Share of Different Financial Sources Among Total Assets (%) by Year 29
Table 1.4: Share of Different Financial Sources Among Total Assets (%) by Firm Scale 31
Table 1.5: Share of Different Financial Sources Among Total Assets (%) by Ownership 32
Table 1.6: Interest Expense by Different Types of Firms 34
Table 1.7: Summary Statistics and Correlations 37
Table 1.8: The Effect of Informal Financing on Firm Performance 40
Table 1.9: The Effect of Informal Financing on Firm Performance (IV) 42
Table 2.1: Targeted and Actual Growth Rates of M1 and M2 (2000–2014) 52
Table 2.2: Main Monetary Policy Instruments 54
Table 2.3: 5-Value Monetary Stance: Coding Criteria 58
Table 2.4: Descriptive Statistics 60
Table 2.5: Correlations Between the Variables 61
Table 2.6: The Taylor Rule and McCallum Rule 65
Table 2.7: The Taylor Rule and McCallum Rule with Existing Policy Stance 66
The Taylor Rule and McCallum Rule with Existing Policy Stance 66
Table 2.8: The Taylor Rule and McCallum Rule: Lagged Dependent Variables 66
Table 2.9: The Responsiveness of Monetary Policy Stance (State Space Model) 67
Table 2.10: The Responsiveness of Monetary Policy Stance (Narrative Approach) 68
Table 3.1: Main Monetary Policy Phases 78
Table 3.2: Main Monetary Policy Instruments 79
Table 3.3: Domestic and Foreign Variables Included in the Country-Specific Models 89
List of Figures 10
Figure 1.1: China’s Deposit and Lending Rate 25
Figure 2.1: Lending Rate and Deposit Rate 53
Figure 2.2: Chinese Monetary Policy Stance (State Space Method) 56
Figure 2.3: Chinese Monetary Policy Stance (Narrative Approach) 59
Figure 2.4: The Effect of Different Monetary Policy Measurements 70
Figure 3.1: Chinese Monetary Policy Stance (State Space Method) 81
Figure 3.2: China-, Japan-, and US’s Trade-Shares in ASEAN-5’s Total Trade (1980–2012) 83
Figure 3.3 Co-Movements Between ASEAN-5 and China GDP Growth (10-Year Moving Correlation of Annual Growth Rates) 85
Figure 3.4: The Effect of Positive Shock to China’s Real GDP 92
Figure 3.5: The Effect of Positive (One Standard Error) Shock to Chinese Monetary Stance on Real Output 93
Figure 3.6: The Effect of Positive (One Standard Error) Shock to Chinese Monetary Stance on Inflation 94
Figure 3.7: The Effect of Negative (One Standard Error) Shock to China’s Exchange Rate on Exchange Rate 95
Figure 3.8: The Effect of Negative (One Standard Error) Shock to China’s Exchange Rate on GDP 97
Figure 3.9: The Effect of Positive (One Standard Error) Shock to Chinese Monetary Stance on Real Output (1995 Trading Volume) 98
Figure 3.10: The Effect of Positive (One Standard Error) Shock to Chinese Monetary Stance on Inflation (1995 Trading Volume) 99
Introduction 11
Chapter 1: Financial Sources and Economic Growth: Firm-Level Evidence from Chinese Manufacturing Industry 13
1.1 Introduction 13
1.2 Firms’ Financing Sources 17
1.2.1 Aggregate Level 17
1.2.2 Formal Financial System 19
1.2.3 Alternative Financial Sector 21
1.2.4 Interest Rate Regulation and My Classification 24
1.3 Data Description and Summary Statistics 26
1.3.1 Different Financing Sources 28
1.3.2 Interest Expense Rate 32
1.3.3 Comparison with Existing Literature 35
1.3.4 Firm Performance and Control Variables 36
1.4 Informal Financing and Firm Performance 38
1.4.1 Endogeneity of Informal Financing Decision 39
1.5 Empirical Results 40
1.5.1 Informal Finance and Firm Performance 40
1.5.2 Informal Finance and Firm Performance: Instrumental Variable 41
1.6 Conclusion 43
Chapter 2: An Evaluation of Different Measures of the Chinese Monetary Policy Stance 44
2.1 Introduction 44
2.2 Literature Review 47
2.3 Different Measurements of Chinese Monetary Policy Stance 50
2.3.1 Quantitative and Price Measurement 50
2.3.1.1 Monetary Aggregate 50
2.3.1.2 Interest Rate 51
2.3.2 A Combination of Various Monetary Policy Instruments 54
2.3.3 Narrative Approach 57
2.4 Data 58
2.5 The Responsiveness of Monetary Policies 62
2.5.1 Estimation Methodology for Discrete Index 63
2.5.2 Findings and Analysis 64
2.6 Estimated Response to Monetary Policy Shock 68
2.7 Conclusion 70
Appendix 71
A. An Example of Administrative Guiding 71
B. Details of Narrative Approach 72
Chapter 3: China’s Monetary Policy and its Impact on Developing Asia: A GVAR Approach 74
3.1 Introduction 74
3.2 China’s Monetary Policy 76
3.2.1 A New Measure of Monetary Policy Stance 76
3.2.2 Exchange Rate Regime 82
3.3 China and Asia Countries 83
3.4 Method 84
3.4.1 Theoretical Framework 86
3.5 Data and VARX Setups 88
3.5.1 Data 88
3.5.2 Tests 90
3.5.2.1 Unit Root Tests 90
3.5.2.2 Test Weak Exogeneity 90
3.6 Impulse Response Analysis 90
3.6.1 Positive Shock to China’s Real GDP 91
3.6.2 China’s Monetary Expansion Shock 91
3.6.3 RMB Devaluation Shock 95
3.6.4 An Increasing Impact of China’s Monetary Policy 98
3.7 Conclusion 100
References 101
List of Original Working Papers 105
Subject Index 106