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Pushing on a String: State-Owned Enterprises and Monetary Policy Transmission in China

Author

Listed:
  • Hongyi Chen

    (Hong Kong Institute for Monetary Research)

  • Ran Li

    (Bank for International Settlements)

  • Peter Tillmann

    (Justus-Liebig-University Giessen)

Abstract

This paper studies whether monetary transmission in China is asymmetric. While researchers found an asymmetric transmission in the U.S. and other economies, China offers a specific rationale for asymmetries: the presence of state-owned enterprises (SOEs) enjoying preferential access to financing. To study the consequences of SOEs for policy transmission, we differentiate between expansionary and restrictive policy shocks and argue that SOEs should suffer less from a policy tightening and benefit more from a policy easing. Based on sector-specific macroeconomic time series and a large firm-level data set, we provide evidence of a systematic and sizable asymmetry in the transmission of monetary policy shocks in China. The nature of the asymmetry is consistent with the notion of explicit or implicit government-guarantees of SOEs and has consequences for the adjustment of aggregate variables. In contrast to other central banks, the People’s Bank of China seems to be able to “push on a string”.

Suggested Citation

  • Hongyi Chen & Ran Li & Peter Tillmann, 2018. "Pushing on a String: State-Owned Enterprises and Monetary Policy Transmission in China," MAGKS Papers on Economics 201806, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201806
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    References listed on IDEAS

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    More about this item

    Keywords

    monetary transmission; state-owned enterprises; financial system; VAR; state-dependent local projections; firm-level data;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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