Application of metabolic GM(1,1) model in financial repression approach to the financing difficulty of the small and medium-sized enterprises

Abstract

Purpose

Financial repression refers to any of measures that government employs to prevent the financial intermediaries of an economy from functioning at their full capacity. On the contrary, financial deepening refers to the increased provision of financial services with a wider choice of services geared to all levels of society, which is the process of relieving financial constraint. With the theory of financial repression and financial deepening, the purpose of this paper is to focus on the performance of the financial repression in China and its influences on the financing of the small- and medium-sized enterprises (SMEs).

Design/methodology/approach

The work procedure is as follows: first, the monetization rate and financial interrelations ratio (FIR) are defined to measure the degree of financial repression; next, the classical GM(1,1) model and the metabolic GM(1,1) model are established, respectively, comparison is given out to show which model owns better adaptability. Finally, with metabolic GM(1,1) model, this paper predicts the monetization ratio and FIR in the next few years properly.

Findings

Unlike other theories which ascribe the financing difficulty of the SMEs to various factors, the paper argues that the financial repression in China should be responsible for the financing difficulty of the SMEs based on the theory of financial repression and financial deepening.

Originality/value

This paper points out that measures should be taken to accelerate the progress of the reform of interest rates and promote the efficiency of the financial market system as well as establish the multi-level capital market system for the SMEs to overcome the difficulty.

Citation

Zhang, Q. and Chen, R. (2014), "Application of metabolic GM(1,1) model in financial repression approach to the financing difficulty of the small and medium-sized enterprises", Grey Systems: Theory and Application, Vol. 4 No. 2, pp. 311-320. https://doi.org/10.1108/GS-11-2013-0025