The impact of monetary policy instrument innovation on commercial banks' liquidity creation

Xuedong Zhang and Jinwei Li

Finance Research Letters, 2025, vol. 73, issue C

Abstract: This paper delves into the effects of innovative monetary policy instruments on the liquidity creation capabilities of listed commercial banks, utilizing comprehensive data spanning the years 2014 to 2022. The research uncovers a significant insight: lending facility tools have a positive impact on enhancing the ability of commercial banks to generate liquidity. Furthermore, the provision coverage ratio emerges as a partial mediator in this process, influencing how effectively these tools translate into increased liquidity creation by the banks. This revelation adds depth to our understanding of the intricate relationship between monetary policy and banking liquidity.

Keywords: Innovation in Monetary Policy Instruments; Lending Facility Tools; Liquidity Creation; Provision Coverage Ratio (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324016519

DOI: 10.1016/j.frl.2024.106622

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