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Monetary Policy and Bank Lending in China - Evidence from Loan-Level Data

  • Dong He

    (Hong Kong Monetary Authority and Hong Kong Institute for Monetary Research)

  • Honglin Wang

    (Hong Kong Institute for Monetary Research)

We investigate how monetary policy in a mixed financial system such as that of China, which is characterized by a juxtaposition of quantity- and price-based policy instruments and the co-existence of regulated and market-determined interest rates, affects bank lending. Using a newly constructed loan-level dataset, we find that loan rates but not loan size are affected by both the regulated and the market-determined interest rates and that loan size is instead affected by an implicit quota that is imposed on aggregate bank lending through window guidance. We interpret this finding to be evidence of credit rationing.

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 162013.

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Length: 44 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:hkm:wpaper:162013
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  1. Chun-Yu Ho, 2009. "Market Structure, Welfare, and Banking Reform in China," Working Papers 302009, Hong Kong Institute for Monetary Research.
  2. Dong He & Honglin Wang, 2011. "Dual-Track Interest Rates and the Conduct of Monetary Policy in China," Working Papers 212011, Hong Kong Institute for Monetary Research.
  3. Dong He & Laurent Pauwels, 2008. "What Prompts the People's Bank of China to Change its Monetary Policy Stance? Evidence from a Discrete Choice Model," Working Papers 0806, Hong Kong Monetary Authority.
  4. Chang, Tzu-Pu & Hu, Jin-Li & Chou, Ray Yeutien & Sun, Lei, 2012. "The sources of bank productivity growth in China during 2002–2009: A disaggregation view," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 1997-2006.
  5. Jia, Chunxin, 2009. "The effect of ownership on the prudential behavior of banks - The case of China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 77-87, January.
  6. Nicholas R. Lardy, 2008. "Financial Repression in China," Policy Briefs PB08-8, Peterson Institute for International Economics.
  7. Piti Disyatat, 2008. "Monetary policy implementation: Misconceptions and their consequences," BIS Working Papers 269, Bank for International Settlements.
  8. Ferri, Giovanni, 2009. "Are New Tigers supplanting Old Mammoths in China's banking system? Evidence from a sample of city commercial banks," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 131-140, January.
  9. Gunji, Hiroshi & Yuan, Yuan, 2010. "Bank profitability and the bank lending channel: Evidence from China," Journal of Asian Economics, Elsevier, vol. 21(2), pages 129-141, April.
  10. International Monetary Fund, 2009. "What Drives China's Interbank Market?," IMF Working Papers 09/189, International Monetary Fund.
  11. Qin, Duo & Quising, Pilipinas & He, Xinhua & Liu, Shiguo, 2005. "Modeling monetary transmission and policy in China," Journal of Policy Modeling, Elsevier, vol. 27(2), pages 157-175, March.
  12. Chong, Terence Tai-Leung & Lu, Liping & Ongena, Steven, 2013. "Does banking competition alleviate or worsen credit constraints faced by small- and medium-sized enterprises? Evidence from China," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3412-3424.
  13. Lin, Xiaochi & Zhang, Yi, 2009. "Bank ownership reform and bank performance in China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 20-29, January.
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