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Monetary policy surprises and corporate investment growth in China

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  • Jiang, Lunan
  • Chen, Yinghui
  • Zhang, Lin

Abstract

This paper analyzes the impact of unexpected changes in Chinese monetary policy on the investment growth of public firms. Previous research on the Chinese economy has not effectively linked firm-level investment determination in corporate finance with monetary policy transmission in macroeconomics, thus limiting our understanding of the characteristics and mechanisms of this effect. We proxy the unexpected monetary policy changes by the M2 growth shocks identified from monetary policy rules. Our results indicate that the change in money growth significantly affects investment growth at the firm level. Positive shocks increase corporate investment growth, whereas negative ones do the opposite. However, the extent of this effect varies over time and gets more substantial under restrictive shocks. Such an effect also differs in magnitude across firms due to firm-level heterogeneous characteristics, highlighting the importance of corporate financial constraints and credit channels of monetary policy transmission.

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  • Jiang, Lunan & Chen, Yinghui & Zhang, Lin, 2024. "Monetary policy surprises and corporate investment growth in China," Economic Modelling, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:ecmode:v:131:y:2024:i:c:s0264999323004273
    DOI: 10.1016/j.econmod.2023.106615
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    Keywords

    Monetary policy shocks; Corporate investment growth; Financial constraints;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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