Credit and Fiscal Multipliers in China

27 Pages Posted: 18 Jan 2018

See all articles by Sophia Chen

Sophia Chen

International Monetary Fund (IMF) - Research Department

Lev Ratnovski

International Monetary Fund; European Central Bank, Financial Research Division

Pi-Han Tsai

Zhejiang University - College of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 2017

Abstract

We jointly estimate credit and fiscal multipliers in China. We use the tenure of the provincial party secretary, interacted with the type of stimulus used in other provinces, to obtain separate instruments for provincial credit and government expenditure. We estimate a fiscal multiplier of 0.8 and a credit multiplier of 0.2 in 2001-2015. The multipliers have changed over time. The fiscal multiplier has increased from 0.75 in 2001-2008 to 1.4 in 2010-2015. The credit multiplier has declined from 0.17 to zero over the same periods. Our results suggest that reducing credit growth in China is unlikely to disrupt output growth, whereas fiscal policy may be effective in supporting macroeconomic adjustment.

Keywords: Asia and Pacific, China, Macroprudential Policy, Fiscal stimulus, Credit Growth, Multipliers, Comparative or Joint Analysis of Fiscal and Monetary or Stabilization Policy, General, Size and Spatial Distributions of Regional Economic Activity

JEL Classification: E63, G21, H20, R12

Suggested Citation

Chen, Sophia and Ratnovski, Lev and Tsai, Pi-Han, Credit and Fiscal Multipliers in China (December 2017). IMF Working Paper No. 17/273, Available at SSRN: https://ssrn.com/abstract=3104543

Sophia Chen (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Lev Ratnovski

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://ratnovski.googlepages.com

European Central Bank, Financial Research Division

Germany

Pi-Han Tsai

Zhejiang University - College of Economics ( email )

Yuquan Campus 38 Zheda Road
Hangzhou, Zhejiang 310027
China

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