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The Implementation of Monetary Policy in China: The Interbank Market and Bank Lending

Author

Listed:
  • Hongyi Chen

    (Hong Kong Institute for Monetary Research)

  • Qianying Chen

    (Hong Kong Institute for Monetary Research)

  • Stefan Gerlach

    (Institute for Monetary and Financial Stability and University of Frankfurt and Hong Kong Institute for Monetary Research)

Abstract

We analyze the impact of monetary policy instruments on interbank lending rates and retail bank lending in China using an extended version of the model of Porter and Xu (2009). Unlike the central banks of advanced economies, the People's Bank of China uses changes in the required reserve ratios and open market operations to influence liquidity in money markets and adjusts the regulated deposit and lending rates and loan targets to intervene in the retail deposit and lending market. These interventions prevent the interbank lending rate from signalling monetary policy stance and transmitting the effect of policy to the growth of bank loans.

Suggested Citation

  • Hongyi Chen & Qianying Chen & Stefan Gerlach, 2011. "The Implementation of Monetary Policy in China: The Interbank Market and Bank Lending," Working Papers 262011, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:262011
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    More about this item

    Keywords

    Monetary Policy Implementation; Regulated Retail Interest Rates; Transmission Mechanism; Window Guidance; Bank Loans; China;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • 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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