EconPapers    
Economics at your fingertips  
 

How does financial development change the effect of the bank lending channel of monetary policy in developing countries?—Evidence from China

Shuai Li, Shuwei Zhan, Shurui Zhan and Minghua Zhan

International Review of Economics & Finance, 2023, vol. 85, issue C, 502-519

Abstract: This study investigates the relationship between financial development (FD) and monetary policy effectiveness in developing countries using China as a case. The traditional view argues that the relationship between FD and the role of the bank lending channel (BLC) of monetary policy has an inverted U shape. However, in this study, we find that this may not be the case. The results depend on how the types of FD indicators are classified. For developing countries such as China, financial reform does not necessarily improve the financial marketization level. Therefore, FD produces two effects: the market-oriented effect (FDM) and scale effect (FDS). The effect of the former is an inverted U-shape while that of the latter is a U-shape. Previous studies mainly focused on FDM thus ignoring FDS. In our, study, we find that the relationship between FD and the role of BLC is affected by the heterogeneity of enterprises.

Keywords: Dual effect of financial development; Monetary policy; Bank lending channel; Financial friction (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056023000394
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:85:y:2023:i:c:p:502-519

DOI: 10.1016/j.iref.2023.02.001

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2024-03-09
Handle: RePEc:eee:reveco:v:85:y:2023:i:c:p:502-519