Abstract
ABSTRACTWe study the effect of domestic monetary policies on China’s systemic risk after the collapse of Lehman Brothers. Evidence shows China’s systemic risk was relatively high in 2009 and to the end of 2011. The increased systemic risk was partly due to the contagion from the volatile global financial market, but effects from domestic monetary policy actions are also nonnegligible. Evidence also suggests monetary policy shocks significantly increased China’s systemic risk between October 2008 and November 2013 while they had a limited effect on the real economy. Findings in this article call for a more prudent monetary policy in the context of high global financial risk.
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