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China's financial prices are informative enough for the PBC to introduce a monetary policy framework centered around interest rates. While bond yields are not fully efficient?reflecting regulation, liquidity, and segmentation?we find they contain considerable information about the state of the economy as well as evidence of an emerging transmission channel: changes in PBC rates influence the structure of Treasury, financial, and corporate bond yield curves, which are then associated with changes in growth and inflation. Coporate spreads are also a leading indicator of growth and inflation. While further liberalization will strengthen both efficiency and transmission, several necessary elements to move towards indirect monetary policy are already in place.

Interest rates --- Econometric models. --- Banks and Banking --- Investments: Commodities --- Finance: General --- Inflation --- Investments: Bonds --- Interest Rates: Determination, Term Structure, and Effects --- Financial Markets and the Macroeconomy --- General Financial Markets: General (includes Measurement and Data) --- Price Level --- Deflation --- Finance --- Investment & securities --- Macroeconomics --- Yield curve --- Securities markets --- Arbitrage --- Bonds --- Financial services --- Financial markets --- Commodities --- Prices --- Financial institutions --- Capital market --- Financial instruments --- China, People's Republic of

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What might interest rate liberalization do to intermediation and the cost of capital in China? China’s most binding interest rate control is a ceiling on the deposit rate, although lending rates are also regulated. Through case studies and model-based simulations, we find that liberalization will likely result in higher interest rates, discourage marginal investment, improve the effectiveness of intermediation and monetary transmission, and enhance the financial access of underserved sectors. This can occur without any major disruption. International experience suggests, however, that achieving these benefits without unnecessary instability, requires vigilant supervision, governance, and monetary policy, and a flexible policy toolkit.

Banks and banking. --- Banking --- Banks and Banking --- Banks and banking --- Banks --- Central Banks and Their Policies --- Commercial banks --- Deposit rates --- Depository Institutions --- Event Studies --- Finance --- General Financial Markets: Government Policy and Regulation --- Industries: Financial Services --- Information and Market Efficiency --- Interbank rates --- Interest rates --- Interest Rates: Determination, Term Structure, and Effects --- Loans --- Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection --- Micro Finance Institutions --- Mortgages --- China, People's Republic of

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Sharp increase in house prices combined with the extraordinary Chinese lending growth during 2009 has led to concerns of an emerging real estate bubble. We find that, for China as a whole, the current levels of house prices do not seem significantly higher than would be justified by underlying fundamentals. However, there are signs of overvaluation in some cities’ mass-market and luxury segments. Unlike advanced economies before 2007-8, prices have tended to correct frequently in China.Given persistently low real interest rates, lack of alternative investment and mortgage-to-GDP trend, rapid property price growth in China has, and will continue to have,a structural driver.

Banks and Banking --- Macroeconomics --- Real Estate --- Industries: Financial Services --- Nonagricultural and Nonresidential Real Estate Markets --- Housing Supply and Markets --- Interest Rates: Determination, Term Structure, and Effects --- Price Level --- Inflation --- Deflation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Property & real estate --- Finance --- Land prices --- Housing prices --- Real interest rates --- Asset prices --- Housing --- Prices --- Interest rates --- China, People's Republic of

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The world has become more interconnected over the past few decades. Against this backdrop, economic and financial contagion following adverse shocks can have a severe impact on the global economy. How systemic can the effects of contagion be? What specific transmission channels are involved? What is their relative importance? We address these questions using a multilayered global network model of contagion that simulates the impact of sovereign debt default on the global economy. We also develop a measure of global systemic risk and use bank stress testing techniques to quantify the systemic impact of the shock and the extent of contagion on the global economy. Our model shows that economic and financial contagion are highly non-linear, and many bystander economies can experience significant negative effects as the initial default is spread through the network. This suggests that many economies might be systemically more important than what conventional measures of size or openness might suggest.

Macroeconomics --- Economics: General --- Exports and Imports --- Finance: General --- Banks and Banking --- Econometric and Statistical Methods: Special Topics: General --- Neural Networks and Related Topics --- International Finance: General --- Open Economy Macroeconomics --- Globalization: Finance --- Financial Crises --- International Financial Markets --- International Lending and Debt Problems --- General Financial Markets: Government Policy and Regulation --- Monetary Policy --- Current Account Adjustment --- Short-term Capital Movements --- Trade: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Finance --- International economics --- Banking --- Debt default --- External debt --- Financial contagion --- Financial sector policy and analysis --- International reserves --- Central banks --- Portfolio investment --- Balance of payments --- Imports --- International trade --- Currency crises --- Informal sector --- Economics --- Debts, External --- Financial risk management --- Foreign exchange reserves --- Portfolio management --- Russian Federation

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The world has become more interconnected over the past few decades. Against this backdrop, economic and financial contagion following adverse shocks can have a severe impact on the global economy. How systemic can the effects of contagion be? What specific transmission channels are involved? What is their relative importance? We address these questions using a multilayered global network model of contagion that simulates the impact of sovereign debt default on the global economy. We also develop a measure of global systemic risk and use bank stress testing techniques to quantify the systemic impact of the shock and the extent of contagion on the global economy. Our model shows that economic and financial contagion are highly non-linear, and many bystander economies can experience significant negative effects as the initial default is spread through the network. This suggests that many economies might be systemically more important than what conventional measures of size or openness might suggest.

Russian Federation --- Macroeconomics --- Economics: General --- Exports and Imports --- Finance: General --- Banks and Banking --- Econometric and Statistical Methods: Special Topics: General --- Neural Networks and Related Topics --- International Finance: General --- Open Economy Macroeconomics --- Globalization: Finance --- Financial Crises --- International Financial Markets --- International Lending and Debt Problems --- General Financial Markets: Government Policy and Regulation --- Monetary Policy --- Current Account Adjustment --- Short-term Capital Movements --- Trade: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Finance --- International economics --- Banking --- Debt default --- External debt --- Financial contagion --- Financial sector policy and analysis --- International reserves --- Central banks --- Portfolio investment --- Balance of payments --- Imports --- International trade --- Currency crises --- Informal sector --- Economics --- Debts, External --- Financial risk management --- Foreign exchange reserves --- Portfolio management