UBC Theses and Dissertations

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UBC Theses and Dissertations

Government intervention in financial markets Xiao, Kairong


Governments play an important role in financial markets around the world. This thesis studies theoretical mechanisms and empirical consequences of government actions in financial markets in order to better understand the organization of the financial sector and the inner working of governments. The first essay “Shadow Banks, Deposit Competition, and Monetary Policy” studies the transmission mechanism of monetary policy through the shadow banking system, a group of non-bank financial intermediaries conducting banking business in the economy. This essay shows empirically and theoretically that the shadow banking system partially offsets the impact of monetary policy on the traditional commercial banking system and may lead to unintended consequences in terms of the stability of the financial system. The second essay “Regulation and Market Liquidity” (co-authored with Professor Francesco Trebbi), explores whether the post-crisis financial regulations, including the Dodd-Frank Act and Basel III, have caused liquidity deterioration in the U.S. fixed income market. Against the popular claim that post-crisis regulations hurt liquidity, this essay finds no evidence of liquidity deterioration during periods of regulatory intervention. Instead, liquidity seems to have improved in this period. The third essay, “Factions in Nondemocracies: Theory and Evidence from the Chinese Communist Party” (co-authored with Professor Patrick Francois and Professor Francesco Trebbi), investigates theoretically and empirically the factional arrangements and dynamics within the Chinese Communist Party (CCP), the governing political party of the People's Republic of China. This essay documents a set of new empirical findings showing how factional politics affects the promotion of individual politicians within the CCP hierarchy. This essay proposes a theoretical model to rationalize these findings and conduct a set of counterfactual analyses of possible institutional changes within the CCP.

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