China's monetary policy and the loan market : How strong is the credit channel in China?

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Title: China's monetary policy and the loan market : How strong is the credit channel in China?
ISBN: 978-952-323-284-6
Author: Breitenlechner, Max ; Nuutilainen, Riikka
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
ISSN: 1456-5889
Series year: 2019
Series number: 15/2019
Year of publication: 2019
Publication date: 9.8.2019
Pages: 30
Subject (yso): rahapolitiikka; luottomarkkinat; kysyntä; luotot; tarjonta; luotonanto; tuotanto
Keywords: Bofit-kokoelma; Kiina
JEL: C32; E44; E52
Other keywords: China; monetary policy; transmission effects; structural vector autoregression; zero and sign restrictions
Abstract: We study the credit channel of Chinese monetary policy in a structural vector autoregressive framework. Using combinations of zero and sign restrictions, we identify monetary policy shocks linked to supply and demand responses in the loan market. Our results show that policy shocks coinciding with loan supply effects account for roughly 10 percent of output dynamics after two years, while loan demand effects represent up to 7 percent of output dynamics depending on the policy measure. The credit channel thus constitutes an important and economically relevant transmission channel for monetary policy in China. Monetary policy in China also accounts for a relatively high share of business cycle dynamics.

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