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China's Model of Managing the Financial System / Markus K. Brunnermeier, Michael Sockin, Wei Xiong.
- Format:
- Book
- Author/Creator:
- Brunnermeier, Markus K.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w27171.
- NBER working paper series no. w27171
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2020.
- Summary:
- China's economic model involves active government intervention in financial markets. We develop a theoretical framework in which interventions prevent a market breakdown and a volatility explosion caused by the reluctance of short-term investors to trade against noise traders. In the presence of information frictions, the government can alter market dynamics since the noise in its intervention program becomes an additional factor driving asset prices. More importantly, this may divert investor attention away from fundamentals and totally toward government interventions (as a result of complementarity in investors' information acquisition). A trade-off arises: government's objective to reduce asset price volatility may worsen, rather than improve, information efficiency of asset prices.
- Notes:
- Print version record
- May 2020.
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