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The green premium of unconventional monetary policy: Evidence from the enlarged collateral framework by the People's Bank of China

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  • Chen, Ruoyu
  • Wang, Guoqing
  • Jamil, Nabiha
  • Iqbal, Najaf

Abstract

We exploit the recent inclusion of green bonds to the “Eligible Collateral Assets” (ECAs) for the “Medium-term Loan Facility” (MLF) by the People's Bank of China (PBOC) as a quasi-natural experiment and analyze its impact on the credit spreads between green and non-green bonds. We use the daily bond market data and employ the difference-in-differences (DID) model for analysis. Adding green bonds to the pool of ECAs by the PBOC significantly reduces the credit spreads (the required return on green bonds was higher earlier). The policy has a more prominent effect on the bonds issued by high-rated and local banks, as well as the ones situated in the Green Finance Reform Innovation Pilot Zones (GFRIPZ). The results of the parallel trend test indicate that the policy effect has a short-term lag, but overall, it shows a trend of continuous enhancement during the sample period.

Suggested Citation

  • Chen, Ruoyu & Wang, Guoqing & Jamil, Nabiha & Iqbal, Najaf, 2025. "The green premium of unconventional monetary policy: Evidence from the enlarged collateral framework by the People's Bank of China," Research in International Business and Finance, Elsevier, vol. 73(PB).
    • Handle: RePEc:eee:riibaf:v:73:y:2025:i:pb:s0275531924004483
    DOI: 10.1016/j.ribaf.2024.102655
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    Keywords

    Unconventional monetary policy; Collateral framework; Green bonds; Credit spreads; People’s Bank of China;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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