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Interbank liquidity transmission and the credit channel of monetary policy in China

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  • Jiang, Hai
  • Yuan, Chao
  • Lin, Zhitao

Abstract

This paper investigates the liquidity transmission of traditional and structural monetary policy instruments in the interbank market and their effects on bank credit growth based on 107 banks from 2005Q4 to 2020Q4 in China. We find that the credit channel of monetary policy differs across banks with heterogeneous liquidity acquisitions. The liquidity released by open market operations (OMOs) cannot stimulate credit growth, but increases the net interbank assets of primary banks and reduces those of non-primary banks. The reduction of the required reserve ratio (RRR) increases the net interbank assets of non-primary banks and stimulates non-primary banks’ credit growth. Furthermore, a higher interbank financing ratio reduces the credit channel of RRR reduction in non-primary banks. In addition, medium- and small-sized banks would increase credit growth and reduce reliance on interbank financing, as the structural monetary policy instrument of medium-term lending facilities (MLFs) plays a growing role post-reform.

Suggested Citation

  • Jiang, Hai & Yuan, Chao & Lin, Zhitao, 2023. "Interbank liquidity transmission and the credit channel of monetary policy in China," Research in International Business and Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001423
    DOI: 10.1016/j.ribaf.2023.102016
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    References listed on IDEAS

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    Cited by:

    1. Jiang, Hai & Zhu, Yunfan & Yuan, Chao & Zhang, Xiaolin, 2025. "Interest rate liberalization and the procyclicality of the bank liquidity buffer: Evidence from China," Journal of Asian Economics, Elsevier, vol. 98(C).
    2. Chao Yuan & Hai Jiang & Jiawen Ren & Nikos Kapitsinis, 2024. "Collateral Monetary Policy, Regional Financial Development, and Nonfi nancial Firms' Shadow Banking Activities," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 32(5), pages 166-196, September.

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    More about this item

    Keywords

    Monetary policy; Liquidity transmission; Interbank behavior; Credit channel of monetary policy;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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