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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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    Cited by:

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    2. Ran, Gao & Zixiang, Zhu & Jianhao, Lin, 2022. "Consumption–investment comovement and the dynamic impact of monetary policy uncertainty in China," Economic Modelling, Elsevier, vol. 113(C).
    3. Margaret Chitiga‐Mabugu & Martin Henseler & Ramos Emmanuel Mabugu & Hélène Maisonnave, 2022. "The implications of deteriorating state‐owned enterprise performance on the South African economy," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(3), pages 731-754, September.
    4. Francesco Macheda & Roberto Nadalini, 2022. "China’s Escape from the Peripheral Condition: A Success Story?," Review of Radical Political Economics, Union for Radical Political Economics, vol. 54(1), pages 59-82, March.
    5. Karlo Kauko, 2021. "The Vanishing Interest Income of Chinese Banks," Asian Economic Papers, MIT Press, vol. 20(3), pages 94-113, Fall.
    6. Tang, Huoqing & Zhang, Chengsi & Zhou, Hong, 2022. "Monetary policy surprises and investment of non-listed real sector firms in China," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 631-642.
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    8. Xiaochen Fu, 2021. "Firm Funding and Investment under Bank Credit Control Policy: Evidence from China," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 11(4), pages 1-5.
    9. Chen, Hongyi & Tillmann, Peter, 2021. "Monetary policy uncertainty in China," Journal of International Money and Finance, Elsevier, vol. 110(C).
    10. Shuxia Zhang & Xiangyang Yin & Liping Xu & Ziyu Li & Deyue Kong, 2022. "Effect of Environmental, Social, and Governance Performance on Corporate Financialization: Evidence from China," Sustainability, MDPI, vol. 14(17), pages 1-20, August.
    11. Liu, Jinjing & Wang, Hong, 2022. "Economic policy uncertainty and the cost of capital," International Review of Financial Analysis, Elsevier, vol. 81(C).
    12. Cheng, Xiaoqiang & Wang, Yabin, 2022. "Shadow banking and the bank lending channel of monetary policy in China," Journal of International Money and Finance, Elsevier, vol. 128(C).

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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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