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Monetary Stimulus Policy in China: the Bank Credit Channel

Author

Listed:
  • Min Zhang

    (East China Normal University, Faculty of Economics and Management, School of Economics)

  • Yahong Zhang

    (Department of Economics, University of Windsor)

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 influences sectoral investments and aggregate GDP. The quantitative analysis shows that the 2009--2010 monetary expansion explains nearly 90 percent of the rise in GDP growth. Moreover, balancing credit allocation across sectors and applying unified banking regulations jointly enhance the GDP growth rate by 2.15 percentage points, with the contribution of the unified banking regulations proving more important.

Suggested Citation

  • Min Zhang & Yahong Zhang, 2020. "Monetary Stimulus Policy in China: the Bank Credit Channel," Working Papers 2001, University of Windsor, Department of Economics.
    • Handle: RePEc:wis:wpaper:2001
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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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