Regional Effects on the Interaction Between Financial Inclusion and Monetary Policy A High Frequency Approach for China

Mahbuba Aktar (), Makram El-Shagi () and Florian Gerth ()
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Mahbuba Aktar: Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan
Makram El-Shagi: Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan
Florian Gerth: Asian Institute of Management, Philippines

No 2026/4, CFDS Discussion Paper Series from Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China

Abstract: Financial frictions are a key determinant of monetary policy transmission. Using provincial Chinese data for 2011–2019, we examine this question through the lens of regional variation in traditional and digital financial inclusion. We combine high-frequency monetary policy shocks with state-dependent local projections, in- terpreting traditional inclusion as a proxy for liquidity constraints and digital inclusion as a proxy for search frictions. Regions with stronger liquidity constraints exhibit weaker output and price responses, in line with the predictions of New Keynesian models with heterogeneous agents. Lower search frictions instead tend to amplify transmission over medium horizons, though short-run effects are mixed.

Keywords: monetary policy transmission; regional differences; financial frictions; financial inclusion; high-frequency identification (search for similar items in EconPapers)
JEL-codes: C2 E4 E5 (search for similar items in EconPapers)
Date: 2026-03
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