Does Targeted Monetary Policy Matter?
38 Pages Posted: 10 Dec 2016 Last revised: 20 Feb 2018
Date Written: December 6, 2016
Several major central banks have experimented targeted monetary policy to improve credit resource allocation. This policy only applies to eligible banks. For example, The People’s Bank of China conducted 7 targeted reductions of reserve requirement during 2014-2015. This paper first in the literature documents the phenomenon of targeted monetary policy and evaluates its effects. The results show that in the case of China, it generates extra, significant positive return on stocks of eligible banks, amounting to 1.2%-1.3% in 4 days’ treatment period. This substantial return should give commercial banks strong incentive to align with policy goals of central banks.
Keywords: Targeted monetary policy, Credit resource allocation, Central banking
JEL Classification: E52, E58, G21, G38
Suggested Citation: Suggested Citation