Monetary Policy Transmission under Financial Repression / Kaiji Chen, Yiqing Xiao, Tao Zha.

Format:

Book

Author/Creator:

Chen, Kaiji.

Contributor:

National Bureau of Economic Research.

Xiao, Yiqing.

Zha, Tao.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31396.

NBER working paper series no. w31396

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

According to the conventional bank lending channel of monetary policy, wholesale funding in economies with well-developed financial markets moves negatively with retail deposits in response to changes in the monetary policy rate, thereby weakening the transmission of monetary policy. We present a theoretical model to demonstrate that in economies with financial repression, (i) retail deposits and wholesale funding comove positively in response to changes in the policy rate and (ii) wholesale funding strengthens, rather than weakens, the transmission of monetary policy to bank loans. We support these findings by bank-level evidence with deposit rate ceilings.

Notes:

Print version record

June 2023.