NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

China's Gradualistic Economic Approach and Financial Markets

Markus K. Brunnermeier, Michael Sockin, Wei Xiong

NBER Working Paper No. 23194
Issued in February 2017
NBER Program(s):   AP   CF   EFG   ME   POL

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 for the 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.

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Document Object Identifier (DOI): 10.3386/w23194

  
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