Impact Of Leverage Constraints On China's Economic Fluctuations

With the development of modern financial industry,leveraged behavior has become increasingly common in economic activities,accompanied by gradual increase in the level of macro leverage.Leverage ratio is an important indicator to measure the debt level of economy.It has both positive and negative effects.Under a moderate level of debt scale,the increase in leverage ratio not only has a certain stimulating effect on economic entities to improve their financing capabilities,but also can improve the efficiency of capital allocation,and promote the economy to develop in a stable direction.On the contrary,improper use of leverage may increase risk accumulation,exacerbate economic bubbles,and even trigger a debt crisis.Since the outbreak of global financial crisis in 2008,countries around the world have paid close attention to the “deleveraging” problem of financial institutions in developed countries,as well as the consequent increase in sovereign debt risks and slowdown in economic growth.In this context,the degree of deleveraging has become an important indicator for measuring the effectiveness of China's supply-side structural reforms and financial risk prevention and control policies.From the current point of view,China has made positive progress in structural deleveraging,debt risks tend to decline,and economic growth momentum has also rebounded.However,it is worth noting that at the current stage,China's overall macro leverage ratio is still at a relatively high level,and financial risk prevention and control are still difficult.In addition,the continuous fermentation of trade disputes between China and the United States and the world-spread of COVID-19 have also caused great uncertainty and potential risks to the external environment faced by deleveraging.In this context,based on mainstream economic theories,this dissertation takes the macroeconomic effects of China's leverage as the research object.After comprehensively analyzing relevant domestic and foreign literature and basing on the actual situation of China's current economic development,this dissertation makes an in-depth and systematic study on the impact of leverage constraints on China's macroeconomic fluctuations,and proposes,analyzes and solves the problem of the relationship between China's leverage constraints and macroeconomic fluctuations,so as to have a deeper grasp of the nature of macroeconomic operations.The research content of this dissertation mainly includes the following three aspects:The first is to characterize the level of leverage and economic fluctuations,so as to obtain relevant stylized facts.One is to obtain relevant stylized facts by characterizing the levels of leverage in different economic sectors and comparing the differences in the leverage between China and the world's major economies;The second is to use GDP growth rate and per capita GDP growth rate as measurement indicators to characterize China's economic fluctuations;The third is to compare the differences in economic fluctuations between China and the world's major economies,so as to have a comprehensive understanding of China's macroeconomics.These relevant stylized facts lay the foundation for theoretical modeling and empirical analysis in the following sections.The second is the establishment of theoretical model and numerical simulation analysis.Chapters 4 to 7 of this dissertation start from the homogeneity model,and through the continuous relaxation of economic assumptions,the heterogeneous household model,the heterogeneous enterprise model,and the two-sector heterogeneity model are constructed,respectively.By matching with the micro data,this dissertation describes the impact of different sector entities on the macro economy under the constraints of the leverage ratio and provides a new perspective for the formulation of macroeconomic policies.Specifically,Chapter 4 describes the benchmark model of this dissertation.Through the static analysis of the steady-state value of the benchmark model,the changes in the steady-state value of each variable under different levels of corporate leverage are investigated,and the mechanism of the impact of changes in corporate leverage on total output is explored.Chapter 5introduces the heterogeneity of the household sector into the benchmark mode,that is,divides the household sector into savings-type households and loan-type households,and studies the relationship between leverage constraints and economic fluctuations.Numerical simulations show that the recession of the economy is caused by the losses suffered by the banks,and this recession will be exacerbated by the banks' inability to provide credit to the real economy.When the capital held by banks exceeds regulatory requirements,banks usually seek to make up for their losses through capital injection or deleveraging.Through deleveraging,banks transform the initial shock into credit constraints,and further amplify and spread the shock to the real economy through lending to the corporate sector.Chapter 6introduces the heterogeneity of enterprises into the benchmark model from the perspective of enterprise background.Enterprises are divided into two categories,namely state-owned enterprises(SOEs)and non-state-owned enterprises(non-SOEs).The difference between SOEs and non-SOEs,in addition to the ownership background,this dissertation also assumes that SOEs are less efficient,and SOEs have strong financial strength and are guaranteed by the government,their loans are not restricted,that is,there is no shortage of funds.Through numerical simulation analysis,it is found that when the economy is affected by the redistribution of the real sector,the total output will show a positive change.This is because when the real economy sector obtains more social capital,it can be used to expand production.As shown in the impulse response graph,when the real economic sector obtains more social capital,the total social capital and total investment will rise,and therefore the total social output will also increase.Further analysis found that total output was more affected by the redistribution shock of the non-SOEs.Chapter 7comprehensively considers the heterogeneous household sector and the heterogeneous corporate sector on the basis of the previous two chapters.Through numerical model analysis,it is found that in the face of the impact of the leverage ratio of the household sector,banks tend to lend more funds to the household sector,resulting in a decrease in capital flowing into the production sector,and a decline in total social investment,so total output will also be reduced.However,the real economy sector can obtain more social capital after being impacted by the leverage ratio,which makes the total social capital rise,and the total investment also rises,so the total social output increases.The last part is the empirical research on China's leverage ratio and economic fluctuations.This dissertation uses China's macroeconomic data from the first quarter of 1996 to the fourth quarter of 2018 to construct the SVAR model and conducts empirical tests on the dynamic relationship between economic fluctuations and the leverage ratio of the household sector,economic fluctuations and the leverage ratio of non-financial enterprises,respectively.The empirical results found that:(1)Both household sector leverage and corporate sector leverage have a positive relationship with economic volatility,that is,household sector leverage and corporate sector leverage have procyclical changes.(2)The change in the leverage ratio of the household sector does not have a significant impact on economic fluctuations.The possible reason lies in the fact that the savings rate of Chinese residents is relatively high.Compared with the corporate sector and the government sector,the overall level of the leverage ratio of the household sector is relatively low.Compared with other major economies in the world,China's household sector leverage ratio is still at a relatively low level,so the overall influence and interpretation of economic fluctuations are weak.(3)The leverage ratio of non-financial companies will aggravate economic volatility.The possible reason is that during the economic downturn,the debt expansion policy adopted to avoid an excessive decline in economic growth and a vicious cycle of debt tightening will bring about a decrease in the marginal effect of real GDP growth and inflation growth under the specific background of economic structural transformation,which in turn led to an increase in the leverage ratio of Chinese non-financial companies.In view of the high dependence of China's non-financial companies on external financing,the impact will be further amplified through the role of the credit market,resulting in a reduction in the scale of investment by non-financial companies,resulting in greater fluctuations in the real economy.The contributions of this dissertation mainly include the following three aspects:(1)This dissertation constructs a two-sector heterogeneous subject model to analyze the impact of leverage constraints on China's economic fluctuations.Existing studies either only consider the heterogeneity of the household sector(saving households and borrowing households),or only consider the heterogeneity of the corporate sector(SOEs and non-SOEs).Studies that simultaneously consider the heterogeneity of the household sector and the corporate sector are still insufficient.From the perspective of the household sector,with the rapid development of consumer loans in China,the borrowing ratio of the household sector continues to rise,and the impact of monetary policy regulation through credit channels on the decision-making of the household sector will become increasingly obvious.Therefore,it is necessary to distinguish the heterogeneity of the household sector in the model of leverage ratio.From the perspective of the corporate sector,SOEs have a natural advantage in obtaining bank loans due to their strong state-owned background.However,due to the special background of SOEs,their social responsibilities are greater than that of non-SOEs.Therefore,how to characterize the relationship between different types of enterprises and the impact of leverage constraints requires further discussion.Based on this,this dissertation considers both heterogeneity of the household sector and heterogeneity of the corporate sector,the model established is more in line with the actual development of China's economy,and the conclusions and policy recommendations obtained are more accurate and targeted.To a certain extent,this is an important supplement to existing research.(2)This dissertation organically combines the analysis paradigm of the mainstream DSGE model with empirical analysis,and continuously refines the impact categories of leverage constraints on China's economic fluctuations,providing theoretical references for more precise formulation of macroeconomic policies.Based on the typical facts of the China's economy,the heterogeneous household model,the heterogeneous enterprise model and the two-sector heterogeneity model are constructed respectively through the continuous relaxation of economic assumptions.By matching with the micro data,this dissertation describes the impact of different sector entities on the macro economy under the constraints of the leverage ratio.The DSGE model analysis framework has many advantages for economic analysis.Compared with traditional econometric model,this dissertation studies macroeconomic issues on the basis of a solid microeconomic theory,and the model is more rigorous and consistent in theory.At the same time,because the model framework has significant structural features,it can avoid Lucas' s criticism.At the same time,the application of the SVAR model further verifies the results of the theoretical model,which helps to better understand the policy transmission mechanism,enrich and expand the research tools of policy analysis,and provide a new perspective for the formulation of macroeconomic policies.(3)This dissertation has portrayed the structural problems that have always existed in China's economic operation,so it can analyze the role of economic structural adjustment in the short-term fluctuations under a complete theoretical framework.Most of the existing domestic studies simply apply domestic economic data to economic models in foreign studies to study China's economic problems,and the traditional homogeneity model fails to explore the structural contradictions in the actual economic operation,therefore the proposed policy measures are also biased towards the traditional aggregate demand-side management.Starting from the typical facts of China's economy,this dissertation aims to analyze and solve China's problems.Firstly,three important Chinese economic characteristics or factors including leverage constraints,household heterogeneity and enterprise heterogeneity are extracted,and then then two types of heterogeneity models are established based on these characteristics or factors.Through the introduction of the heterogeneity of households and enterprises,the structural problems that have always existed in the Chinese economy have been described in detail.Therefore,it is possible to analyze the role of economic structural adjustment in short-term fluctuations under a complete theoretical framework,the interference of economic structural changes on the effect of fiscal and monetary policy,and to extend the research and discussion of policy prescriptions to supply-side structural reforms.