IDEAS home Printed from https://ideas.repec.org/a/eee/ecanpo/v80y2023icp398-413.html
   My bibliography  Save this article

Green bond spread effect of unconventional monetary policy: Evidence from China

Author

Listed:
  • Fang, Fang
  • Si, Deng-Kui
  • Hu, Debao

Abstract

The development of green bond market is of great significance to the low-carbon transformation of China’s economy. However, green bond financing costs have remained high. The People’s Bank of China has guided the market to actively participate in green bond investment and financing activities by including green bonds in the scope of qualified collateral for monetary policy instruments. Against this backdrop, the role of unconventional monetary policy in reducing the cost of green financing is a critical topic being discussed in academia. In this study, we examine the cost impact of unconventional monetary policy on green financing, particularly green bonds. Specifically, using bond market data from 2016 to 2020, we construct a difference-in-difference (DID) model to empirically test the effect of China’s unconventional monetary policy on the financing cost of green bonds. The results indicate that unconventional monetary policy reduces the trade spread of green bonds compared with non-green bonds in the secondary market. However, the effect on the spreads of primary market green bonds is insignificant. Furthermore, through sub-sample tests based on ownership and bond ratings, this study finds that unconventional monetary policy has a more pronounced impact on the transaction spreads of AA+ and AA rated green bonds, green bonds issued by state-owned enterprises, large-scale green bonds, as well as long-term green bonds in the secondary market. Based on the above conclusions, we put forward policy suggestions to improve the top-level design of green bond market and activate the enthusiasm of bond trading from two aspects: expanding the scope of green bond collateral of central bank lending programs and enhancing the issuance advantages of green bond in the primary market.

Suggested Citation

  • Fang, Fang & Si, Deng-Kui & Hu, Debao, 2023. "Green bond spread effect of unconventional monetary policy: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 398-413.
    • Handle: RePEc:eee:ecanpo:v:80:y:2023:i:c:p:398-413
    DOI: 10.1016/j.eap.2023.08.019
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0313592623002047
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eap.2023.08.019?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecanpo:v:80:y:2023:i:c:p:398-413. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/economic-analysis-and-policy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.