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On the People’s Bank of China’s Financial Strength and Policy Outcomes

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  • Lixin Sun

    (The Center for Economic Research, Shandong University, Shandananlu, Jinan, P. R. C.)

Abstract

This paper measures the financial strength of the People’s Bank of China from the perspective of balance sheets, and then examine empirically whether its financial strength influences its policy commitments given its financial conditions. The econometric results suggest that, first, the financial strength of the People’s Bank of China does affect its policy performance, although the effects are weak and overall results lack robustness with respect to the econometric technique and the choice of alternative measures of financial strength. Second, alternative financial strength indicator plays different role in helping the People’s Bank of China achieve its alternative policy objectives. Therefore, maintaining benign financial conditions and a resilient balance sheet are necessary pre-conditions for the People’s Bank of China to achieve desirable policy outcomes. Third, the People’s Bank of China’s current standalone finance is healthy under our stressing tests, despite certain concerns attained.

Suggested Citation

  • Lixin Sun, 2020. "On the People’s Bank of China’s Financial Strength and Policy Outcomes," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(3), pages 135-161.
    • Handle: RePEc:cbk:journl:v:9:y:2020:i:3:p:135-161
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial Strength; The People’s Bank of China; Balance Sheet Analysis; Stress Testing; Policy Performance;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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