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Reserve Requirements as a Chinese Macro Policy Tool

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Abstract

China?s central bank frequently adjusts its reserve requirements for commercial banks as a way to stabilize economic fluctuations. These adjustments affect the overall credit supply but can also lead to the reallocation of credit and capital. Evidence shows that increases in reserve requirements raise off-balance-sheet lending, which typically benefits China?s more productive private sector, at the expense of on-balance-sheet loans to less productive state-owned enterprises. Under certain conditions, reserve requirements can be a useful additional policy instrument for improving resource allocations and also for macroeconomic stabilization in China.

Suggested Citation

  • Zheng Liu & Mark M. Spiegel, 2017. "Reserve Requirements as a Chinese Macro Policy Tool," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00130
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    1. Chang-Tai Hsieh & Zheng (Michael) Song, 2015. "Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 50(1 (Spring), pages 295-366.
    2. Chong-En Bai & Chang-Tai Hsieh & Zheng Michael Song, 2016. "The Long Shadow of a Fiscal Expansion," NBER Working Papers 22801, National Bureau of Economic Research, Inc.
    3. Chang-Tai Hsieh & Zheng (Michael) Song, 2015. "Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 295-366.
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    Cited by:

    1. Maria Csanádi & Ferenc Gyuris, 2020. "Uneven Economic Overheating in a Transforming Party-State During the Global Crisis: The Case of China," KRTK-KTI WORKING PAPERS 2036, Institute of Economics, Centre for Economic and Regional Studies.

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