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Targeted monetary policy and agriculture business loans

Chaoying Lin and Lerong He

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: This study examines the effect of a Targeted Easing (TE) policy, an unconventional monetary policy tool initiated by the Chinese central bank to reduce reserve requirement ratios of agricultural financial institutions. Utilizing a longitudinal sample of Chinese agriculture companies and a matching sample of industrial firms between 2012 and 2017, we find that the TE policy successfully achieves its intended policy goal to boost lending to the agriculture sector. Results from our difference-in-differences estimations indicate that loan levels of agriculture firms increases significantly more than that of matching nonagricultural firms under TE relative to the non-TE period. We also document heterogeneous TE effects and find that agricultural firms with smaller agency costs, larger financing constraints, and larger loan intensity levels benefit significantly more from a TE policy than their counterparts. In addition, the TE policy effect is more salient during a contractionary period than in an expansionary period.

Keywords: Targeted easing; Monetary policy; Bank loans; Agriculture financing; China (search for similar items in EconPapers)
JEL-codes: E52 G38 Q14 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.najef.2020.101290

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