Withstanding Great Recession Like China

FRB of St. Louis Working Paper No. 2014-007A

46 Pages Posted: 12 Mar 2014

See all articles by Yi Wen

Yi Wen

Federal Reserve Bank of St. Louis - Research Department; Tsinghua University

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate; Tsinghua University - Department of Construction Management

Date Written: March 9, 2014

Abstract

The Great Recession was characterized by two related phenomena: (i) a jobless recovery and (ii) a permanent drop in aggregate output. Data show that the United States, Europe, and even countries with lesser ties to the international financial system have suffered large permanent losses in aggregate output and employment since the financial crisis, despite unprecedented monetary injections. However, the symptoms of the Great Recession were not observed in China, despite a 45% permanent drop in its exports— one of the largest trade collapses in world history since the Great Depression. Our empirical analysis shows that China’s success in escaping the Great Recession is attributable to its bold and powerful 4 trillion renminbi stimulus package launched in late 2008. We study the precise channels through which the stimulus programs work in China. We also construct a simple model to rationalize the dramatically different impacts of stimulus programs across countries.

Keywords: Coordination Failure, Deflation, Fiscal Multiplier, Great Recession, Jobless Recovery, Liquidity Trap, State Capitalism, Quantitative Easing, Chinese Economy.

JEL Classification: E32, E58, E62, H12, H50.

Suggested Citation

Wen, Yi and Wu, Jing, Withstanding Great Recession Like China (March 9, 2014). FRB of St. Louis Working Paper No. 2014-007A. Available at SSRN: https://ssrn.com/abstract=2407164 or http://dx.doi.org/10.2139/ssrn.2407164

Yi Wen (Contact Author)

Federal Reserve Bank of St. Louis - Research Department ( email )

411 Locust St
Saint Louis, MO 63011
United States
314-444-8559 (Phone)
314-444-8731 (Fax)

Tsinghua University ( email )

Beijing, 100084
China

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate ( email )

HeShanHeng Building
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Tsinghua University - Department of Construction Management ( email )

Heshanheng Building
Tsinghua University
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

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