Abstract
Over the past decade, the Chinese government has conducted the joint-stock reform of state-owned commercial banks. The joint-stock reform improves the marketization level of the ownership structure of commercial banks and consequently leads to impacts on the effectiveness of monetary policy. This paper first presents the impacting mechanisms of the joint-stock reform of commercial banks on the effectiveness of monetary policy and then constructs an empirical model to test those impacts. The empirical results show that the increasing degree of joint-stock reform of commercial banks enhances the effectiveness of expansionary monetary policy but weakens the effectiveness of contractionary monetary policy in China.
Highlights
The joint-stock reform leads commercial banks to act more and more like a rational economic agent in the market economy system, and their market strategies are increasingly inclined toward the pursuit of benefit maximization, which leads to challenges for the People’s Bank of China (PBOC) to implement monetary policy adjustments; this motivates us to examine the impacts of the joint-stock reform of commercial banks on the effectiveness of monetary policy in China
Because commercial banks reconstruct the ownership structure by issuing stocks in the stock market, the market value of all publicly traded stocks issued by commercial banks can be used to indicate to some extent the degree of commercial banks’ joint-stock reform
This result implies that the joint-stock reform of commercial banks has significant positive effects on the effectiveness of expansionary monetary policy in China
Summary
The objectives of monetary policy are to create economic growth, reduce unemployment, and stabilize the price level. The review of the existing literature shows that ownership structure is one of the main factors that affect the business strategies of commercial banks in the transmission of monetary policy and may affect the effectiveness of monetary policy. The joint-stock reform has changed the ownership structure, as well as the business objectives, of commercial banks in China. Chunxin Jia (2009) examined the relationship between ownership and the prudential behavior of banks and showed that the joint-stock reform has improved the incentive for state-owned commercial banks to behave more prudently in their lending. The joint-stock reform changes the ownership structure of China’s commercial banks; as a result, the business strategies of these banks have started to consider the interests of shareholders.
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