Data and Code for "Interest-Rate Liberalization and Capital Misallocations"

We study the consequences of interest-rate liberalization in a two-sectorgeneral equilibrium model of China. The model captures a key feature ofChina's distorted financial system: state-owned enterprises (SOEs) havegreater incentive to expand production and easier access to credit thanprivate firms. In this second-best environment, interest-rate liberalization can improve capital allocations within each sector, but can also exacerbatemisallocations across sectors. Under calibrated parameters, theliberalization policy can reduce aggregate productivity and welfare unless otherpolicy reforms are also implemented to alleviate SOEs' distorted incentivesor improve private firms' credit access.