Deposit Regulation and Monetary Transmission in China

Kaiji Chen, Yiqing Xiao and Tao Zha

No 31396, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In well-developed financial markets, retail deposits and wholesale funding comove negatively in response to monetary policy changes. This negative comovement weakens the transmission of monetary policy. By contrast, our study finds that in emerging markets such as China, where deposit rate ceilings are regulated, (i) retail deposits and wholesale funding comove positively as the policy rate changes, and (ii) wholesale funding strengthens the transmission of monetary policy to bank lending. We develop a theoretical model that highlights the significant influence of deposit regulation on monetary policy transmission in the context of the world’s largest emerging market economy.

JEL-codes: E02 E5 G11 G12 G28 (search for similar items in EconPapers)
Date: 2023-06
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mon
Note: AP EFG ME
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