Resumo:
China's economic model involves active government intervention in financial markets. We
develop a theoretical framework in which interventions prevent a market breakdown and a
volatility explosion caused by the reluctance of short-term investors to trade against noise traders.
In the presence of information frictions, the government can alter market dynamics since the
noise in its intervention program becomes an additional factor driving asset prices. More
importantly, this may divert investor attention away from fundamentals and totally toward
government interventions (as a result of complementarity in investors' information acquisition). A
trade-off arises: government's objective to reduce asset price volatility may worsen, rather than
improve, information efficiency of asset prices
China's Model of Managing the Financial SystemMarkus K. Brunnermeier, Michael Sockin, and Wei XiongNBER Working Paper No. 27171May 2020JEL No. G01,G14,G28
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