Involuntary Excess Reserve and Heterogeneous Transmission of Policy Rates to Bank Lending Rates in China
Date
2018-05-29
Advisors
Journal Title
Journal ISSN
ISSN
0377-7332
Volume Title
Publisher
Springer
Type
Article
Peer reviewed
Yes
Abstract
This study examines the impact of liquidity and involuntary excess reserves on interest rate pass-through in China. Employing Error Correction Model estimation based on a sample of 86 banks over the period of 2000 – 2013, the study finds that liquid banks can better shield against tightening monetary policy and adjust lending rate sluggishly. In contrast, banks with larger involuntary excess reserves tend to increase lending interest rates more rapidly in response to tightening monetary policy. We conclude that unwanted liquidity may lead to risk-taking behaviours which are detrimental to financial stability.
Description
The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.
Keywords
Excess Reserves, Policy Rates, Interest Rates
Citation
Nguyen, T.V.H., Boateng, A., Pham, T.T.T. (2018) Involuntary Excess Reserve and Heterogeneous Transmission of Policy Rates to Bank Lending Rates in China. Empirical Economics, pp.1-22.