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China's monetary policy surprises and corporate real investment

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  • Lu, Dong
  • Tang, Huoqing
  • Zhang, Chengsi

Abstract

We evaluate the effect of China's monetary policy shocks on corporate real investment. We propose a new approach to identify China's monetary policy shocks using high-frequency surprises based on treasury futures around monetary policy announcements as external instruments. We then estimate the dynamic effect of monetary policy shocks on corporate real investment using a rich firm-level data of all listed non-financial firms in China. We find that an unexpected monetary policy easing boosts firms' investment expenditures with heterogeneous dynamic responses across firms: small-sized firms have quicker responses than large-sized firms, especially for non-state-owned enterprises (non-SOEs). We show that sales revenue response could be the channel through which monetary policy shock transmits to non-SOEs' investment expenditures in China.

Suggested Citation

  • Lu, Dong & Tang, Huoqing & Zhang, Chengsi, 2023. "China's monetary policy surprises and corporate real investment," China Economic Review, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:chieco:v:77:y:2023:i:c:s1043951x22001511
    DOI: 10.1016/j.chieco.2022.101893
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    More about this item

    Keywords

    Monetary policy; High-frequency identification; Proxy-VAR; Investment;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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