Zhengyan Xiao, Yumei Guo, Junjie Guo

【Abstract】

The state-owned enterprises and private enterprises credit discrimination is a unique phenomenon in the process of China’s economic transformation. Based on the financial accelerator models, this paper incorporates enterprise heterogeneity and a banking sector into a new-Keynesian DSGE model to study the social welfare loss caused by credit discrimination. The numerical analysis shows that credit discrimination would increase the social welfare loss by 6.2% because it amplifies private-owned enterprises’ output volatility and propagates the inflation volatility. Moreover, this paper finds that credit discrimination would cause social welfare loss under different monetary policy regime. Finally, this paper concludes that to eliminate the welfare loss the government should remove the credit discrimination.

【Keywords】

credit discrimination, welfare loss;financial accelerator, monetary policy