Does Targeted Monetary Policy Matter? A Perspective from China

19 Pages Posted: 12 Feb 2018

See all articles by Wenzhe Li

Wenzhe Li

Tsinghua University, PBC School of Finance; The People's Bank of China (PBC)

Date Written: February 2018

Abstract

Several major central banks have experimented with targeted monetary policy to improve credit resource allocation. This policy only applies to ‘eligible’ banks. For example, The People’s Bank of China conducted seven targeted reductions of reserve requirements during 2014–15. This article documents the phenomenon of targeted monetary policy and evaluates its effects. The results show that, in the case of China, this policy has generated an extra significant, positive return on the stocks of eligible banks, amounting to 1.2–1.3 per cent in a four‐day treatment period. This substantial return gives commercial banks an extra incentive to align with the policy goals of central banks.

Keywords: central banking, credit resource allocation, targeted monetary policy

Suggested Citation

Li, Wenzhe, Does Targeted Monetary Policy Matter? A Perspective from China (February 2018). Economic Affairs, Vol. 38, Issue 1, pp. 106-124, 2018, Available at SSRN: https://ssrn.com/abstract=3120785 or http://dx.doi.org/10.1111/ecaf.12273

Wenzhe Li (Contact Author)

Tsinghua University, PBC School of Finance ( email )

No. 43, Chengdu Road, Haidianqu
Beijing, 100083
China

The People's Bank of China (PBC) ( email )

No.32 Chengfang Street, Xichengqu
Beijing, 100800
China

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