Interest Rate Liberalization, Heterogeneity of Corporate Ownership Structure and the Effect of Broad Credit Channel
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| Title | Interest Rate Liberalization, Heterogeneity of Corporate Ownership Structure and the Effect of Broad Credit Channel
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| Author | Zhan Minghua and Ying Chengwei |
| Organization | Zhejiang Sci-Tech University |
| Email | zhanmheco@163.com；ycw_work@126.com |
| Key Words | financial friction; economic structure; broad credit channel; financial accelerator |
| Abstract | In the period of transformation, progressive liberalization of interest rate and heterogeneity of corporate ownership Structure are two traits of China’s economic structure. Based on those two traits, this paper introduces new constraints to Oliner’s (1996) standard model of broad credit channel and builds an extended model of broad credit channel for China’s monetary policy. This paper puts forward two hypotheses and tests them with a sample of China’s unlisted companies during 1998-2007. The finding of this research is that when financial friction remains constant and the interest rate regulation is loosened, the financial accelerator effect of contractionary monetary policy on the economy through broad credit channel will be strengthened instead of weakened. However, the growing proportion of state-owned enterprises in the economy significantly reduces the effect of financial accelerator. The policy implications of this study includes that financial friction should be considered in carrying out monetary policy, financial friction reduction should precede complete interest rate liberalization, and the impact of state-owned enterprises’ growth should be reviewed given that the financial friction remains constant. |
| Serial Number | WP805 |
| Time | 2015-01-16 |
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