The Implementation of Monetary Policy in China: The Interbank Market and Bank Lending

Hong Kong Institute for Monetary Research (HKIMR) Working Paper No. 26/2011

38 Pages Posted: 10 Sep 2011

See all articles by Hongyi Chen

Hongyi Chen

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

Qianying Chen

International Monetary Fund (IMF) - Monetary and Capital Markets Department

Stefan Gerlach

Central Bank of Ireland; Centre for Economic Policy Research (CEPR)

Date Written: August 31, 2011

Abstract

We analyze the impact of monetary policy instruments on interbank lending rates and retail bank lending in China using an extended version of the model of Porter and Xu (2009). Unlike the Central banks of advanced economies, the People’s Bank of China uses changes in the required reserve ratios and open market operations to influence liquidity in money markets and adjusts the regulated deposit and lending rates and loan targets to intervene in the retail deposit and lending market. These interventions prevent the interbank lending rate from signalling monetary policy stance and transmitting the effect of policy to the growth of bank loans.

Keywords: Monetary Policy Implementation, Regulated Retail Interest Rates, Transmission Mechanism, Window Guidance, Bank Loans, China

JEL Classification: E42, E52, E58

Suggested Citation

Chen, Hongyi and Chen, Qianying and Gerlach, Stefan, The Implementation of Monetary Policy in China: The Interbank Market and Bank Lending (August 31, 2011). Hong Kong Institute for Monetary Research (HKIMR) Working Paper No. 26/2011, Available at SSRN: https://ssrn.com/abstract=1920761 or http://dx.doi.org/10.2139/ssrn.1920761

Hongyi Chen

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR) ( email )

3 Garden Road, 8th Floor
Hong Kong
China

Qianying Chen (Contact Author)

International Monetary Fund (IMF) - Monetary and Capital Markets Department ( email )

United States
1-202-623-6633 (Phone)

Stefan Gerlach

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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