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Recently, the paper "Double Financial Frictions, Transformation of Enterprises' Goals and China's Economic Fluctuations", which was co-authored by Associate Professor Zhang Yun and Professor Li Junqing, was published in the 1st issue of Economic Research Journal, a top Chinese journal in economics.

This paper first introduces the transformation of enterprise goals and double financial frictions into the basic real business cycle model and studies the role of credit-demand and credit-supply factors in business cycle fluctuations to understand the role of double financial frictions and SOEs in shaping business cycle dynamics. It has been found that (1) When there are financial frictions between banks and enterprises and between banks and households, pro-cyclical enterprises and bank balance sheets lead to counter-cyclical external financing premiums, which have a double acceleration effect on investment and output. (2) Because household assets are mainly saved and private funds smooth credit fluctuations, the acceleration effect of supply-side friction on credit is weaker than demand-side friction. (3) The transformation of enterprise goals enhances or attenuates the acceleration effect of financial friction through economic structural channels. This paper finds that China’s macrocontrol policies should pay more attention to the periodicity of corporate and bank balance sheets and stabilize the economic fluctuations caused by the dual financial frictions.

Economic Research Journal was founded in 1955. It is a national comprehensive economic theory journal. It is sponsored by the Economic Research Institute of the Chinese Academy of Social Sciences and the director of the Chinese Academy of Social Sciences.