BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 1/2008:
Has the Chinese economy become more sensitive to interest rates? Studying credit demand in China
Tuuli Koivu ()
Abstract: Chinese authorities have traditionally relied mainly on
administrative and quantitative measures in conducting monetary policy,
with interest rates playing a less prominent role. Additional support for
this view resides in a number of earlier studies that have found that the
impact of interest rates on the real economy has been miniscule. However,
taking into account numerous reforms in the financial sector and more
widely in the Chinese economy, interest rates may have gained some
influence in the last few years. It is important to study the effectiveness
of interest rates also in light of future reforms of the monetary policy
tools in China. Whereas administrative policy measures were effective in
guiding the behaviour of state-owned enterprises, the authorities may need
to increase the use of more market-oriented monetary policy tools as the
share of the economy in private and foreign ownership grows. We use a
vector error correction model to study, within a credit demand framework,
whether the impact of interest rates in China has become stronger over the
last decade. Our results suggest that loan demand has indeed become more
dependent on interest rates, albeit the channel from interest rate to the
real economy is still weak.
Keywords: China; monetary policy; (follow links to similar papers)
JEL-Codes: E52; P24; (follow links to similar papers)
41 pages, April 3, 2008
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
DP0108.pdf 
Download Statistics
Questions (including download problems) about the papers in this series should be directed to Päivi Määttä ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design by Joachim Ekebom
