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Regional Effects on the Interaction Between Financial Inclusion and Monetary Policy A High Frequency Approach for China

Author

Listed:
  • Mahbuba Aktar

    (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)

  • Makram El-Shagi

    (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)

  • Florian Gerth

    (Asian Institute of Management, Philippines)

Abstract

Financial frictions are a key determinant of monetary policy transmission. Using provincial Chinese data for 2011–2019, we examine this question through the lens of regional variation in traditional and digital financial inclusion. We combine high-frequency monetary policy shocks with state-dependent local projections, in- terpreting traditional inclusion as a proxy for liquidity constraints and digital inclusion as a proxy for search frictions. Regions with stronger liquidity constraints exhibit weaker output and price responses, in line with the predictions of New Keynesian models with heterogeneous agents. Lower search frictions instead tend to amplify transmission over medium horizons, though short-run effects are mixed.

Suggested Citation

  • Mahbuba Aktar & Makram El-Shagi & Florian Gerth, 2026. "Regional Effects on the Interaction Between Financial Inclusion and Monetary Policy A High Frequency Approach for China," CFDS Discussion Paper Series 2026/4, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    • Handle: RePEc:fds:dpaper:202604
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    Keywords

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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