 Monetary policy shocks and resource misallocations in the Periphery: Evidence from Chinese provincial bond yieldsRobert Dekle and Andrew Tsang Journal of International Money and Finance, 2023, vol. 137, issue C Abstract: We examine the effects of monetary expansions in the center on the excess yields of government bonds in the periphery. We show that the excess yields widen, and the widening is larger, the larger the misallocation of resources in the periphery. Specifically, we examine a panel of over 2500 local Chinese government bonds in 31 provinces, and find that the expansion of Chinese money supply surprisingly raises the excess yields of local bonds over Chinese sovereign bonds, and the gap is larger, the higher the degree of misallocation or other institutional failures in the province. By treating Chinese provinces as small emerging market open economies, we can draw implications for periphery countries in a common currency area, of an expansion in money supply in the center. Our results suggest that the increase in global liquidity post the 2009 and Covid-19 crises can lead to future fragility in the periphery countries. Keywords: Capital flows; Monetary policy spillovers; Chinese local bonds; Misallocation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:137:y:2023:i:c:s026156062300092x DOI: 10.1016/j.jimonfin.2023.102891 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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