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Interest rate liberalization and pass-through of monetary policy rate to bank lending rates in China

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  • Jingya Li

    (University of Macau)

  • Ming-Hua Liu

    (University of Macau)

Abstract

We examine whether the effectiveness of the monetary policy rate transmission differs before and after interest rate liberalization in China using the autoregressive distributed lag (ARDL) bound test and an error correction model (ECM). The results show that after liberalization the mark-up is lower, and both the long-run and short-run interest rate pass-through has become faster and more complete. We attribute our findings to the ongoing reforms of China’s banking system, which has improved the competitiveness of Chinese commercial banks.

Suggested Citation

  • Jingya Li & Ming-Hua Liu, 2019. "Interest rate liberalization and pass-through of monetary policy rate to bank lending rates in China," Frontiers of Business Research in China, Springer, vol. 13(1), pages 1-19, December.
    • Handle: RePEc:spr:fobric:v:13:y:2019:i:1:d:10.1186_s11782-019-0056-z
    DOI: 10.1186/s11782-019-0056-z
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    4. Kang, Kuan & Mohd Ashhari, Zariyawati & Dato Hj Yahya, Mohamed Hisham & Soh, Wei Ni & Li, Yue, 2024. "Interest rate liberalization and the stability of the Chinese banking system: Exploring chained mediation effects of deposit competitiveness and wealth management products," Finance Research Letters, Elsevier, vol. 62(PB).
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    7. Dilesha Nawadali Rathnayake & Yang Bai & Pierre Axel Louembé & Li Qi, 2022. "Interest Rate Liberalization and Commercial Bank Performance: New Evidence From Chinese A-Share Banks," SAGE Open, , vol. 12(2), pages 21582440221, May.

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