Credit Market Distortions, Matching of Credit Funding and Total Factor Productivity

Based on the reality of incomplete information and credit rent-seeking from the credit market in China, this paper constructs a DSGE model that integrates formal banks, rent-seeking banks and the search and matching process of credit market. This paper analyzes the influence mechanism of credit market distortion on credit matching and total factor productivity through numerical simulation, and the mechanism and effectiveness of relevant policy regulation are simulated. The results show that: (1) Both the noise signal for return on capital of enterprises and credit rent-seeking behavior distort the mechanism for the price allocation in the credit market, resulting in the misallocation of credit funding. While the inefficient state-owned enterprises expand production, they squeeze out the credit funding of the productive non-state-owned enterprises, which has a negative impact on the total factor productivity. (2) The regulatory mechanism corrects the error of bank’s expectation of credit, while guides banks to allocate credit funding according to the optimal decision path of profit maximization. The regulatory mechanism effectively promotes the rational allocation of credit funding, which improves the total factor productivity; Financial anti-corruption not only restrains the credit rent-seeking behavior, but also aggravates the financing difficulty of non-state-owned enterprises, which is difficult to promote the total factor productivity. (3) Gradually promoting the construction of credit marketization and eliminating the distortion of credit market, which could promote the allocation of credit funding from state-owned enterprises to non-state-owned enterprises. The actions realize the efficient allocation of credit funds and improve the level of total factor productivity. Based on the above research results, this paper puts forward policy recommendations from four aspects: the mechanism of improving disclosure for information in the credit market, establishing a fair competition mechanism in the credit market, establishing a regulatory mechanism for the decision-making errors of bank credit, and strengthening efforts for financial anti-corruption.