Reserve requirements and the bank lending channel in China

Zuzana Fungáčová (), Riikka Nuutilainen and Laurent Weill ()

No 26/2015, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: This paper examines how reserve requirements influence the transmission of monetary policy through the bank lending channel in China while also taking into account the role of bank ownership. The implementation of Chinese monetary policy is characterized by the reliance on the reserve requirements as a regular policy tool with frequent adjustments. Using a large dataset of 170 Chinese banks for the period 2004–2013, we analyze the reaction of loan supply to changes in reserve requirements. We find no evidence of the bank lending channel through the use of reserve requirements. We observe, nonetheless, that changes in reserve requirements influence loan growth of banks. The same findings hold true for other monetary policy instruments. Further, we show that the bank ownership format influences transmission of monetary policy.

JEL-codes: E52 G21 P52 (search for similar items in EconPapers)
Date: 2015-09-21
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cna, nep-mac, nep-mon and nep-tra
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Published in Published in Journal of Macroeconomics, Volume 50, December 2016, Pages 37–50

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Journal Article: Reserve requirements and the bank lending channel in China (2016)
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