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Monetary stimulus policy in China: The bank credit channel

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  • Zhang, Min
  • Zhang, Yahong

Abstract

This paper develops a novel while plausible way to model the Chinese monetary transmission via open market operations (OMOs). In the model, monetary injections through OMOs, together with differentiated collateral regulation in the banking sector, directly affect banks' loan capacities, which then influence sectoral investments and aggregate GDP. The quantitative analysis shows that the 2009–2010 monetary expansion explains nearly 66% of the rise in GDP growth. Moreover, balancing credit allocation across sectors and applying unified banking regulations jointly enhance the GDP growth rate by 1.65 percentage points, with the contribution of the unified banking regulations proving more important.

Suggested Citation

  • Zhang, Min & Zhang, Yahong, 2022. "Monetary stimulus policy in China: The bank credit channel," China Economic Review, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:chieco:v:74:y:2022:i:c:s1043951x22000839
    DOI: 10.1016/j.chieco.2022.101825
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    More about this item

    Keywords

    Monetary stimulus; Bank credit channel; Open market operation rule; Chinese economy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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