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China's Gradualistic Economic Approach and Financial Markets

Author(s): Brunnermeier, Markus K.; Sockin, Michael; Xiong, Wei

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Abstract: China's gradualistic approach allowed the government to learn how the economy reacts to small policy changes, and to adjust its reforms before implementing them in full. With fully developed financial markets, however, private actors may front-run future policy changes, making it impossible to implement policies gradually. With financial markets, the government faces a time-inconsistency problem. The government would like to commit to a gradualistic approach, but after it observes the economy's quick reaction, it has no incentive to implement its policies in small steps.
Publication Date: May-2017
Citation: Brunnermeier, Markus K, Sockin, Michael and Xiong, Wei. (2017). China's Gradualistic Economic Approach and Financial Markets. American Economic Review, 107 (5), 608 - 613. doi:10.1257/aer.p20171035
DOI: doi:10.1257/aer.p20171035
ISSN: 0002-8282
Pages: 608 - 613
Type of Material: Journal Article
Journal/Proceeding Title: American Economic Review
Version: Final published version. Article is made available in OAR by the publisher's permission or policy.

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