The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Diego Anzoategui, Mali Chivakul, and Wojciech Maliszewski
INTERNATIONAL MONETARY FUND
Widespread implicit guarantees and interest ceilings were major distortions in China's
financial system, contributing to a misallocation of resources. We analyze the impact of
removing such frictions in a general equilibrium setting. The results show that
comprehensive reforms generate better outcomes than partial ones: removing the deposit
rate ceiling alone increases output, but the efficiency of capital allocation does not
improve. Removing implicit guarantees improves output through lower cost of capital for
private companies and better resource allocation.