Regional Effects of Monetary Policy in China: Evidence from China's Provinces

31 Pages Posted: 7 Apr 2017

See all articles by Xiaohui Guo

Xiaohui Guo

Hebei University, Baoding, China

Tajul Ariffin Masron

Universiti Sains Malaysia (USM) - School of Management

Date Written: April 2017

Abstract

This study examines the provincial effects of monetary policy from 1978 to 2011 in China. We used the SVAR method to measure the magnitude and timing of each province's response to monetary policy shocks when considering the influences of spillover effects among provinces. Then we also explored the regional effects of monetary policy employing multiple linear regressions. The results confirm that provinces respond differently to monetary policy actions. It was found that in the short run, the influence of spillover effects on a province's response is very important, but in the long run, the negative influence of deposit transfers overtake the positive impact of the spillover effect. For the factors causing the regional effects on monetary policy, the results show that the interest rate channel is rather weak at the regional level in China. The bank lending channel can explain the regional effects of monetary policy to some extent. Thus in China, the bank lending channel is more effective than the interest rate channel at the regional level.

Keywords: monetary policy, structural vector autoregressive, spillover effect, bank lending channel, interest rate channel

JEL Classification: E52, C32, R11, P25

Suggested Citation

Guo, Xiaohui and Masron, Tajul Ariffin, Regional Effects of Monetary Policy in China: Evidence from China's Provinces (April 2017). Bulletin of Economic Research, Vol. 69, Issue 2, pp. 178-208, 2017, Available at SSRN: https://ssrn.com/abstract=2946530 or http://dx.doi.org/10.1111/boer.12095

Xiaohui Guo (Contact Author)

Hebei University, Baoding, China ( email )

Baoding, Hebei
China

Tajul Ariffin Masron

Universiti Sains Malaysia (USM) - School of Management ( email )

Minden, Penang
Malaysia

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