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Bank Credit, Firm Entry and Exit, and Economic Fluctuations in China
Ling Feng,Yizhong Guan,Zhiyuan Li
Front. Econ. China. 2014, 9 (4): 661-694.
https://doi.org/10.3868/s060-003-014-0030-1
This study explores how a worsening bank credit quality affects firms’ entry and exit decisions (i.e., changes in the extensive margin), and how the extensive margin variation amplifies the transmission of financial and technological shocks to the real economy. Using a vector autoregression (VAR) model, our empirical evidence indicates that deteriorating Chinese bank credit conditions have a significant negative influence on net firm entry to the market. To explore the potential mechanism behind the stylized fact, we establish a dynamic stochastic general equilibrium (DSGE) model featuring fixed production costs, loss-related bank credit quality shocks and an endogenous balance sheet constraint which restricts the aggregate credit supply by the level of the banks’ net worth. Model simulations indicate that the interaction of financial constraints and the extensive margin variation amplifies the impact of bank credit shocks on the real economy. When banks experience loss-related financial shocks, bank credit tightens, which increases firms’ external financing costs. When the firms’ expected income is not sufficient to cover the fixed production cost, some firms exit from or stop entering the market. As a result, the economy displays a severe recession and a slow recovery.
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Energy Consumption, Economic Development and Temperature in China: Evidence from PSTR Model
Xiaoli He,Hongwu Wang,Haoran Pan
Front. Econ. China. 2014, 9 (4): 695-712.
https://doi.org/10.3868/s060-003-014-0031-8
Since the 1980s, the Chinese economy has developed rapidly, with an average annual growth rate around 10%. Energy consumption in China has greatly increased as well. This paper investigates the relationship between energy consumption, economic development and temperature in China by adopting provincial panel data from 1990 to 2011. Different from existing studies, in this paper, we use a panel smooth transition regression (PSTR) model to estimate the non-linearity relationship. Four different threshold variables including two lagged endogenous variables and two important exogenous variables have been considered. We find that energy intensity and the ratio of gross capital formation are suitable for the non-linearity model. The estimated elasticities of time dynamic indicate that energy consumption is income inelastic and temperature inelastic. Elasticities of real income at first increase and then decrease, however, elasticities of temperature gradually increase after the year 1993. Last of all, we propose some policy implications.
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8 articles
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