The transmission of liquidity shocks via China's segmented money market: Evidence from recent market events

Ruoxi Lu (), David Bessler () and David Leatham ()

Journal of International Financial Markets, Institutions and Money, 2018, vol. 57, issue C, 110-126

Abstract: This is the first study to explore the transmission paths for liquidity shocks in China’s segmented money market. We examine how money market transactions create such pathways between China’s closely-guarded banking sector and the rest of its financial system, and empirically capture the transmission of liquidity shocks through these pathways during two recent market events. We find strong indications that money market transactions allow liquidity shocks to circumvent certain regulatory restrictions and financial market segmentation in China. Our findings suggest that a widespread illiquidity contagion facilitated by money market transactions can happen in China and new policy measures are needed to prevent such contagion.

Keywords: Money market; Interbank market; Repo; Shibor; Liquidity shock; Transmission (search for similar items in EconPapers)
JEL-codes: C32 E44 E58 G01 G12 G2 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: The transmission of liquidity shocks via China's segmented money market: evidence from recent market events (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:57:y:2018:i:c:p:110-126

DOI: 10.1016/j.intfin.2018.07.005

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