There is a significant difference in the pricing ofcredit bondsbetween our domestic bond market and theforeignmature bond market.In domesticbond market, credit spread does not change along with the change of the default risk in the economic cycle. The study finds thatin credit bond marketthere is strong expectation for rigid paymentand participants are inclined to use arbitrage strategiesto do “carry trade”. Because of thisexpectation andbehavior, the credit spreads of bonds are more reflected in market liquidity premium, rather than the credit risk premium.Therefore,the interest rateand volatilityin money market whichreflect the status of market liquidity havefundamental influence on the pricing of credit bonds. Furthermore,the central counterparty repo arrangement in stock exchange bond marketsblurs the credit qualification of different enterprises andfurther magnifies this effect.

In this article, we analyzed China’s leverage issue, focusing on the level and structure of financial leverage and its relationship with financial risks, we found that the different trends between micro leverage ratios and macro leverage ratios mainly reflect the change of return on capital, which is in turn driven by the economic cycle. Our micro analysis based on the MM theorem shows that information and transaction costs, taxation, and incentive mechanisms, such as the soft budget constraint, are closely related to the leverage structure. Our macro analysis indicates that the investment-oriented growth pattern with high savings helps explain the high leverage ratio in China. We believe that the process of de-leverage should be managed prudently, i.e., efforts should be made to avoid a liquidity crisis and a “debt-deflation” trap due to rapid de-leveraging, and to avoid asset bubbles due to a rapid increase in leverage. At the same time, the best choice for leverage formation mechanism is market-oriented rather than government decided to improve the efficiency of leverage utilization.

No one would doubt on the positive relationship between financial development and economic growth, but what if the financial development grows much faster than the real economy to a certain level, will the development exert a negative impact on economic growth? In order to solve this problem, this paper proposes the concept of exceeding financial development, referring to a situation that financial sectors develop faster than the real economy to a certain degree which would lead to the sub-optimal allocation of resources, systemic risk of society and lower economic growth. On such basis, this paper explains the mechanism of exceeding financial development by modifying the AK model and intends to testify whether the exceeding financial development situation exists in China through first-order difference generalized method of moments(FD-GMM)using a different time range of Chinese provincial panel data. The results show that after controlling relative factors affecting the economic growth, the relationship between financial development and economic growth is nonlinear and if the financial sectors develop higher than the real economy to a certain level, the development would exert negative influence on economic growth.

Mainstream economics does not pay enough attention to exchange rate stability. While instability of exchange rate tends to have more significant negative effects on middle income counties due to their peripheral status among the world economy relative to high income countries, deeper participation to the world market relative to low income countries and bidirectional effects between exchange rate and domestic price. This paper examines exchange rate behavior of middle income countries during the process of economic leap since 1980, builds a framework to decompose the effects of exchange rate on economic leap, analyzes the bidirectional pass-through between exchange rate and inflation quantitatively using a panel VAR model, constructs indicator to test the effects of exchange rate instability on economic growth and proposes suggestions on improving exchange rate stability and economic performance of middle income countries.

China has been experiencing the unprecedented CPI & PPI deviation since March 2012. This paper points out the rapidly increasing investment rate owing to the anti-crisis policy is one of the possible explanations. From the demand side, lack of market investment demand during the post-crisis period highlights the role of the consumption demand, resulting in the deviation directly. From the supply side, resource allocation barriers across sectors amplify the deviation. Therefore, it is necessary to implement reforms such as attracting investment from the private sector, restructuring of zombie enterprises, other than the monetary policy to address this challenge.

This paper analyzes the mechanism of a debt trap in theory by using the nonlinear model predictive control method. The results show that when the debt is at a low level, the debt has a positive influence on the real economy. But with the rising debt level, the real economy is downward after excessive debt reached a certain threshold which means the economy in a debt trap. Empirical studies confirm the above theoretical analysis, and show that China's economy has fallen into the debt trap from firm's evidence. The policy implications of the above findings are that quantitative monetary stimulus policies are not conducive to solving the current economic slowdown. On the contrary, the way of cutting interest rates, capital restructuring to stimulate investment should be adopted.

Considering major variables such as real effective exchange rate (REER), real international interest rate spread and outward FDI, we build a theoretical model, employing smooth-transition GARCH model to study the direct and indirect REER-channel influence on forex. As we conclude, among these factors, REER is obviously non-linear and asymmetric; forex may be affected directly by explanatory variables, or be influenced by them through indirect channel. In addition, high REER expectation can reinforce speculating motivation, which attracts FDI and raises rate of forex increase; while an ineffective international interest rate spread – as tool for monetary policy and “floodgate” for speculative capital – increases forex, and vice versa.

This paper tests and measures the real estate price bubble by the Markov Regime Switching model. Firstly, from the perspective of indirect measurement, theoretical models are built to determine the basic price of real estate. Secondly, the basic price of the real estate is taken away from its market price by employ the cointegration method, and with Markov Regime Switching model, the real estate price bubbles are tested and measured. Finally, the economic background and the reason of the real estate price bubble are interpreted, and relevant policy recommendations are put forward. The empirical results of this paper show that, real estate price bubbles in China are mainly concentrated in four phases during 2003-Oct. 2016. The first phase, which is from the first season of 2003 to the first season of 2004, is caused by the housing monetization reform. The second is from the second season of 2007 to the second season of 2008, which is the extension of the second phase, and spawned by the rapid economic growth. The third, which is from the first season of 2009 to the end of 2010, is originated from the huge currency issued by central bank, and the reaffirmation that real estate industry is a pillar industry of the national economy. The fourth is from the first season to the fourth season of 2013, and is caused by the adjustment of monetary policy aim to stabilize the growth of economy. The last is from year 2015 to 2016, and mainly shows the structural characteristic in economic shift period.

This paper empirically analyzes the impact of the credit system and legal right protection on bank credit scale and credit risks based on the panel data across 102 countries from 2004 to 2012. The results show that the credit system and legal right protection can promote credit scale, which also have remarkable inhibiting effect on the credit risk. Comparing against credit reporting breadth, credit reporting depth can do better in the field of expanding credit scale and reducing credit risk. The mixed credit system of PCR and CB is a more reasonable and realistic choice. Legal protection expands the scale of credit while reducing the risk of credit,the coexistence with the credit system has a positive impact on the credit market.

Using 2011 and 2013 Chinese Household Finance Survey (CHFS)data, this paper empirically tests whether different wealth disparity makes difference in rural households’ access to informal credit markets. We find that for the rural households who have financial demands, the wealthier they are, the more likely for them to borrow from informal credit markts. It could be attributed to that the poor have no extra money to invest on social network, thus lowering their possibility of borrowing. We therefore conclude that informal credit market alone may not solve the financial constraints of poor rural households. The results are robust after we use instruments to account for the endogeneity and to multiple specifications.

When Chinese stock market experienced violent fluctuations in 2014 and 2015, whether or not margin trading aggravated market fluctuations was a hot topic in China. From the perspective of asymmetric volatility, this paper uses EGARCH model to study whether or not Chinese margin trading has aggregated the stock market’s long-term fluctuation. The empirical tests show that Chinese stock market has dually asymmetric volatility, but margin trading exerts no significant influence on either the asymmetric volatility in the bear market or the reverse asymmetric volatility in the bull market. In a word, margin trading does not aggravate Chinese stock market fluctuation.

Extreme price movements are harmful to any stock market. Does and how institutional ownership help to reduce extreme price movements? In this paper, we examine whether the institutional holdings can reduce the incidence of extreme price movements based on data sample from 2006 to 2015 of China’s stock markets. The empirical results show that, keeping other things equal, larger institutional ownership can dramatically reduce the frequency of extreme price movements, which is consistent with prior theoretical prediction that institutional ownership could play a monitoring role on the listed companies. Moreover, the mechanism is stronger for stock price crash. It is also found that the effect of institutional ownership turns to be stronger for firms with more concentrated ownership structure, more public information availability, and higher stock market volatility. The empirical results are very robust with respect to different model specifications, alternative proxies, and various robustness checks.

The great debate on whether fiscal revenue and expenditure should follow an “revenue–expenditure” or an “expenditure–revenue” nexus has been taking place in China more than 2,000 years ago. However, in order to reduce fiscal deficit, cut down government debt and maintain fiscal sustainability, it was not until two decades earlier that the international public finance field has started paying close attention to the relationship between fiscal revenue and expenditure. This paper outlines major literature on causality between fiscal revenue and expenditure, associated econometric approaches, and empirical studies within the context of high, medium and low income countries, and discusses upon various hypotheses and their linkage with government deficit reduction.

Microcredit is an important tool of improving the economic status of vulnerable groups, also one of the key measures to promote financial inclusion. How to simplify the approval process, reduce the service cost of microcredit, with a relatively low default rate, is an outstanding issue in the industry. Based on the panel data of Hainan Rural Credit Cooperatives, this paper shows the main decisive indicators of microcredit “repayment rate” through building a Logit model; explains the link among “repayment rate”, “loan approval/loan application ratio”, and group size, using the curvilinear regression analysis. It further defines the optimal group size in microcredit group lending.