ABSTRACT To better understand the Fear of Floating phenomenon in exchange rate regime evolution, this paper advances the method to identify state dependence and establishes four new findings and explanations. First, the introduction of state dependence into multinomial discrete choice model and calculation of marginal effect corresponding to the parameter estimates are important to correctly explain the exchange rate regimes evolution. Second, both spurious and true state dependence factors can explain the Fear of Floating phenomenon. Third, the estimates of capital account openness are contrary to the prediction of classical theories but are consistent with the Fear of Floating phenomenon in developing economies. Finally, the degree of financial market development cannot affect the regime choices directly, but its non‐linear impact mechanism can further strengthen the explanatory power of this study.
ABSTRACT Using data from national water quality monitoring stations, this paper constructs a city‐border‐year panel dataset of the transboundary river pollution in China. A difference‐in‐difference‐in‐differences (DDD) approach is employed to evaluate the effect of the River Chief System (RCS) on transboundary river pollution control. The results show that the RCS has heterogeneous effects on different pollution indicators, specifically alleviating COD and NpH levels, while deteriorating DO and NH 3 –N levels. The RCS has been, particularly, effective in improving transboundary river pollution control in large and medium cities. This improvement is mainly driven by reductions in agricultural fertiliser use and the upgrading of industrial structures. Finally, the study provides policy implications for implementing relevant water pollution control measures, such as the RCS, with a focus on effectively managing transboundary river pollution.
This paper studies the macroeconomic effects of real estate regulation in China using a multi-sector DSGE model with household, producer, real estate developer and local government. Within this framework, we examine three regulatory shocks: tightening developer's collateralised borrowing constraints, restricting household housing purchases and expanding local government land supply. The quantitative results show that real estate regulation affects house prices through heterogeneous dynamic channels. House prices decline in the short run, but tend to recover or rise over the medium to long run. All three regulatory shocks suppress residential land prices, but lower land prices do not necessarily reduce local government debt because local governments may expand collateralised borrowing to sustain public investment and stabilise output. Welfare analysis further suggests that regulatory policies involve nontrivial cost structures: the positive welfare effects of developer credit tightening and purchase restrictions mainly reflect lower labour disutility, whereas land-supply expansion generates a small welfare loss due to lower housing utility and higher labour disutility. These findings highlight the need to coordinate housing-market stabilisation with land-finance reform and local fiscal-risk management.
This paper estimates the impact of the number of trading partners on public health. The identification strategy exploits the gravity equation to estimate country-fixed effects on the likelihood of trading network formation in the first stage. Then it uses the fixed-effect estimates as control functions in a second-stage model that relates health outcomes to the number of trading partners. We find that opening trade with more countries deteriorates domestic health, such as a lower life expectancy and a higher child mortality, death rate, and HIV infection. Further investigations suggest that the mechanism probably operates through spillover effects, in which the average health quality of trading partners declines when the home country expands its trading network by trading with more developing countries.
This paper re-examines whether the short-run inflation-activity trade-off remains stable during prolonged secular stagnation, using Japan's 'lost decades' as a laboratory. Standard slack measures (e.g., unemployment gaps or detrended unemployment) can embed persistent low-frequency movements that drift over time, obscuring the underlying Phillips-curve relationship. To address this measurement problem, we construct a cyclical activity index that isolates business-cycle-frequency comovement across a broad set of labour-market and real-activity indicators. Using monthly Japanese data from 1983 to 2025, we estimate a short-run Phillips curve and find a negative, economically meaningful relationship between cyclical activity and short-term inflation that is stable across subsamples; structural break tests fail to reject the stability hypothesis. In contrast, conventional slack measures deliver weaker and less stable estimates. An instrumental variable approach that uses the cyclical activity index to instrument the unemployment gap yields a larger and more stable slope, consistent with low-frequency contamination or measurement error in conventional slack. Results are robust to alternative index constructions, inflation measures and expected-inflation controls, including moving-average proxies and survey expectations at different maturities. Overall, demand conditions continue to matter for inflation under secular stagnation, but their influence can be obscured by the way slack is measured.
We study the welfare cost of inflation through its effect on market power. In a monetary search model with endogenous firm entry, the inflation tax erodes households' real money balances, reducing their purchasing power in frictional goods markets. The resulting decline in demand lowers the profitability of marginal firms, driving them out of the market; fewer competing sellers, in turn, charge higher markups. Cross-country empirical evidence supports the model's predictions. The amplification through rising market power raises the welfare cost of inflation substantially relative to the standard inflation-tax benchmark. Our findings suggest that policies promoting firm entry and market competition can serve as an effective tool for mitigating the welfare losses from inflation.
This study examines how economic policy uncertainty (EPU) affects corporate investment in China using a two-step system generalized method of moments estimation from 4502 listed firms (2007-2023). Results reveal a non-linear, inverted U-shaped relationship: moderate EPU stimulates total and short-term investments, while excessive EPU suppresses them. EPU amplifies the contractionary effects on long-term and intangible asset investments under high uncertainty. Ownership and capital structures exert key moderating roles: Concentrated ownership enhances investment stability, whereas institutional and state ownership amplify contractions. Debt financing weakens investment responsiveness through leverage amplification, whereas equity financing provides a capital buffer that sustains investment under moderate EPU. The 2008 Global Financial Crisis intensified the adverse effects of high EPU on investment, whereas COVID-19 stimulus policies mitigated the contractionary effects. Large firms exhibit lower sensitivity to EPU, while small firms display an inverted U-shaped response, reflecting stronger financing constraints. These findings provide novel insights for corporate decision-making and policy design in uncertain environments.
This study represents a pioneering endeavour to estimate the natural rate of interest (NRI) for a group of emerging Asian economies most directly affected by the Asian Financial Crisis (AFC). Our findings reveal a decline in the NRI in Asia over the past few decades. It was observed that the real NRI in Asia plummeted following the AFC but increased after the Global Financial Crisis (GFC) albeit temporarily, which suggests that the impact of the AFC on the NRI may have been larger than that of the GFC. Furthermore, while a certain degree of interdependence was identified between the NRI in Asia and that in the United States, minimal comovement was observed with that in China. This observation implies that the decline in the NRI in Asia can be attributed to region-specific factors.
Changes in weather and climate have inspired researchers to re-examine the relationship between meteorological events and the economy. The increasing occurrence of violent storms has had significant impacts on life and property, especially in typhoon-prone countries. However, the effects of typhoon shocks vary across areas (e.g., towns and cities), and these regional differences are often diluted at aggregated levels. Therefore, this study performs a granular geographic, cross-country analysis to control for the spatial differences in weather patterns. As economic measures are not always available at finer geographies, this study employs night-time lights as a proxy for economic activity at the town and city levels. To indicate potential damage caused by typhoons, this study also calculates an index based on historical typhoon track data and a wind field model. Estimation results reveal that a typhoon destroying half of the property can lower annual average radiance and light sources per square kilometre by about 10% and 12% in Taiwan, and 9% and 4%-5% in the Philippines, respectively. The effects are more pronounced when analysed quarterly. Additionally, distant lags of the damage index imply positive effects on economic activity in Taiwan, but little evidence of this behaviour is found in the Philippines.
This study examines the impact of cross-border data flow restrictions on export product quality. Using data from Chinese A-share listed companies from 2007 to 2015, we find that cross-border data flow restrictions enhance export product quality through two key mechanisms: innovation-driven effect and market expansion effect. Importantly, we also document a significant extensive margin effect: stricter data flow restrictions increase firms' likelihood of entering new export destinations and raise export volumes in newly added markets. Heterogeneity analyses reveal that this positive impact is more pronounced for firms in technology-intensive industries, those with a high level of digital transformation, and those trading with countries that have high institutional quality. This study offers new insights into the influence of cross-border data flow restrictions on firm exports and provides actionable pathways for improving the competitiveness of export firms.
This paper assesses how financial development enables corporate environmental governance, based on the unique Chinese situation that China's city commercial banks (CCBs) are financial institutions financed and controlled by local city governments and aimed at providing financing services to firms under local jurisdictions. Using the successive establishment of CCBs in China as a quasi-natural experiment, our staggered difference-in-differences estimation highlights findings as follows. First of all, CCBs encourage local firms to abatement, although their original incentive is reducing firm's financing costs, while their political characteristic determines this relationship. Secondly, we find that the combination of credit policy and local government's environmental goals is more conducive to firms' emission reduction, which can reduce the inhibition of environmental goals on output and enhance the pollution control capacity of regions with large fiscal gaps. In addition, we find CCBs show stronger emission reduction incentives for high-polluting firms and capital-intensive industries, and have greater incentive for small firms and non-state-owned firms with strong credit constraints to reduce emissions. Overall, this paper reveals the relationship behind the effects of CCBs and firm environmental investment in China, highlighting the cooperative relationship between the financial credit policy and local environmental governance.
County-level fiscal spillovers are crucial in determining the role of cross-county fiscal coordination in fulfilling national economic commitments. Using county-level economic and fiscal spending data from 2010 to 2018, we examine the spillover of fiscal spending across China's regions through output, trade, investment and consumption linkages. Specifically, we find positive fiscal output, investment and employment spillovers and a temporary positive consumption spillover that turns negative over time. Consistent with extant studies, we also find that the county-level fiscal spillover effect in China is comparable to that in the United States.
This study examines the governance effect of the China Securities Regulatory Commission's 2021 regulation mandating the disclosure of specific customer names. Using a Difference-in-Differences approach, we find that the regulatory mandate significantly suppresses the scale of insider selling. Mechanism tests reveal two distinct channels: (1) the "Regulatory Screening" channel, where the inhibitory effect is more pronounced in firms that maintained anonymity than in those that complied; and (2) the "Information Asymmetry" channel, evidenced by a reduction in bid-ask spreads. Further analysis shows that the policy is most effective in innovation-driven sectors (e.g., high-tech, R&D-intensive firms) where supply chain information is highly sensitive, and in firms with severe agency problems. Conversely, the impact is attenuated in firms that already possess robust monitoring mechanisms, such as high institutional or controlling shareholder ownership. Our results highlight the role of mandatory supply chain disclosure as a robust governance mechanism in curbing opportunistic insider behaviour.
This study establishes a model and identifies the key determinants of international air travel demand. It is deployed using data from 11 key source countries to Singapore for the period 1989–2019. The results show the Gross Domestic Product (GDP) per capita and the population size of the source country, bilateral trade between the origin and destination countries, and crude oil prices are the significant factors in explaining international air travel demand. They all positively impact air travel demand, except for crude oil prices, which have negative effects. Air travel to Singapore is still a luxury item, like in most countries worldwide. The Asian financial crisis of 1998 and the Severe Acute Respiratory Syndrome (SARS) epidemic of 2003 were shocks that negatively affected the demand for international air travel to Singapore. In addition, the influencing factors play different roles in explaining international travel demand to Singapore across source market regions.
This paper examines the relationship between wages and unemployment rates in Chinese regional labour markets, focusing on the regional wage curve. Using data from 298 cities from 1999 to 2017, we find a significantly negative relationship between wages and local unemployment rates, indicating higher wages in tight labour markets and lower wages in loose ones. Disaggregated analysis shows that wages are generally more responsive to 1ocal rather than aggregate unemployment. The wage curve effect is strongest in small and medium-sized cities in industrialised regions, suggesting greater sensitivity to local shocks in non-tradable sectors. In contrast, large cities in the industrialising Western region exhibit stronger alignment with aggregate unemployment, reflecting common shocks in tradable sectors, while small and medium cities in the Coastal region respond mainly to local conditions. Cities in the lagging Interior region display weak alignment with both provincial and local labour markets, exacerbating regional disparities. To address these inequalities, we propose a hierarchical coordination mechanism to enhance wage flexibility, enabling regions to adjust more effectively to shocks and helping to reduce disparities between developed and less-developed areas.
This paper investigates the shock-dependent nature and evolution of the Phillips curve slope in the United States using a Bayesian structural vector autoregression model with sign restrictions on monthly data covering the period between 1960 and 2025. The slope is defined as the ratio of cumulative impulse responses of inflation to unemployment following identified demand, supply, and monetary policy shocks. Results indicate the slope is negative for demand and policy shocks but positive for supply shocks, generally steepening over the forecast horizon. A significant finding is the flattening of the policy-shock-dependent slope since 1990, suggesting a weaker inflation response to policy-induced unemployment changes. Historical decompositions further illustrate the contribution of each shock to developments in inflation and unemployment. These findings highlight shock-specific policy trade-offs and increased challenges for monetary policy effectiveness due to the recent flattening.
Based on the micro data set of Chinese manufacturing firms, this paper examines the influence of foreign investment on markups of local Chinese firms and its mechanism. The results show that foreign investment significantly increases the markups of local Chinese firms, whereas the influence of foreign investment on markups of different types of local firms isn't the same, and significant heterogeneity exists. Further analysis of the influence mechanism suggests that foreign investment increases markups of local firms through the production efficiency channel rather than the market pricing channel. Based on the dynamic decomposition of the change in the aggregate markup at the industry level, this paper also finds that foreign investment significantly increases the aggregate industry markup by influencing the across-firm effects. This paper enriches the research literature on foreign investment and markups and provides a new perspective for understanding foreign investment's influence on local firms' micro performance.
Uncertainty surrounding tax, expenditure and debt policy exerts an impact on the real economy. Motivated by this, our study investigates the effects of fiscal policy uncertainty (FPU) on macroeconomic and fiscal aggregates in Korea. Using a recently developed Korea FPU index, we show that while shocks to FPU lead to an increase in government spending, they significantly decline real output, employment, interest rate, tax revenue, and effective corporate tax rate. This implies that the government may increase its spending to counteract the negative effect of FPU shocks on the real economy. Our findings suggest that diminishing FPU levels is important for the stabilisation of the Korean economy. Furthermore, employing FPU indices from major countries, including the US, Japan, and China, we explore international FPU spillovers. Our results provide evidence that the US is the primary transmitter of uncertainty shocks to Korea, followed by China and Japan. Our analysis also reveals the asymmetric nature of FPU spillovers across economies, implying that economic circumstances can result in substantial uncertainty spillovers to Korea from major economies through FPU.
After the consistent implementation of the 'Two Exemptions and One Subsidy' reform for over 15 years, the first cohort of individuals who underwent this reform during their entire compulsory education has now transitioned into the adult labour force. This paper investigates the enduring effects of this reform on urban-rural disparities. Our cohort triple differences results reveal that the reform has significantly reduced the disparities in terms of years of education, admission rates to tertiary education institutions, employment rates (including non-agricultural employment) and personal income levels. By expanding our understanding of subsidised educational policies, we contribute to existing literature and provide important evidence that could help bridge the urban-rural divide in terms of long-term human capital development.
We explain total life satisfaction (TLS) using Wave 5 of World Value Survey data covering 58 countries/jurisdictions by regressing TLS on key explanatory variables. By maximizing individuals' TLS with respect to the share of government spending in GDP, we find that optimal government spending increases with the quality of governance, and that the average total public spending for good public governance countries is very close to (slightly smaller than) average optimal total public spending, which is estimated at 36.85% of GDP at the mean values of key dependent variables. There is, however, significant overspending or underspending for individual countries. While healthcare spending is on average close to optimal, education spending is on average noticeably higher than optimal. An increase in per capita GDP reduces optimal healthcare spending but increases optimal education spending as a percentage of GDP. Both optimal spending on healthcare and that on education increase with population aging.
