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The Implementation of Monetary Policy in China: The Interbank Market and Bank Lending

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Author Info

  • Hongyi Chen

    (Hong Kong Institute for Monetary Research)

  • Qianying Chen

    (Hong Kong Institute for Monetary Research)

  • Stefan Gerlach

    (Institute for Monetary and Financial Stability and University of Frankfurt and Hong Kong Institute for Monetary Research)

Abstract

We analyze the impact of monetary policy instruments on interbank lending rates and retail bank lending in China using an extended version of the model of Porter and Xu (2009). Unlike the central banks of advanced economies, the People's Bank of China uses changes in the required reserve ratios and open market operations to influence liquidity in money markets and adjusts the regulated deposit and lending rates and loan targets to intervene in the retail deposit and lending market. These interventions prevent the interbank lending rate from signalling monetary policy stance and transmitting the effect of policy to the growth of bank loans.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 262011.

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Length: 38 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:hkm:wpaper:262011

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Related research

Keywords: Monetary Policy Implementation; Regulated Retail Interest Rates; Transmission Mechanism; Window Guidance; Bank Loans; China;

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Cited by:
  1. Sun, Rongrong, 2012. "Does Monetary Policy Matter in China? A Narrative Approach," MPRA Paper 45023, University Library of Munich, Germany.
  2. Hou, Xiaohui & Wang, Qing, 2013. "Implications of banking marketization for the lending channel of monetary policy transmission: Evidence from China," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 442-451.
  3. Fernald, John G. & Spiegel, Mark M. & Swanson, Eric T., 2014. "Monetary policy effectiveness in China: evidence from a FAVAR model," Working Paper Series 2014-7, Federal Reserve Bank of San Francisco.

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