The Selection and Co-location of Traditional and Structure Monetary Policy Instruments: An Analysis from the Perspective of Structural Leverage Resolving
YIN Xingshan, YI Zhenhua, XIANG Yanbiao
Hangzhou Central Sub-branch, the People's Bank of China
Summary:
The degree of leverage of China's non-financial corporate sector has risen rapidly since the international financial crisis in 2008. China has the highest leverage level among major global economies, and has the structural characteristic that large and state-owned enterprises have a more significant process of leverage increase than private SMEs. The reasons are complex, but we observe that when the financial structure is dominated by indirect financing, the non-market-oriented interest rate factor weakens the pricing function of financial resources, combined with rigid redemption due to implicit government guarantees, insufficient competition, and serious homogeneity in the financial industry. This results in a credit bias in terms of the property rights and scale discrimination of enterprises during the allocation of credit resources, which leads to a structural mismatch of financial resources and exacerbates the structural leverage problem. The traditional monetary policy is the monetary aggregate adjustment policy, but this faces a dilemma in dealing with structural leverage. An expansionary monetary policy helps to reduce the interest burden and may stimulate the real sector to obtain more loans. However, a tight monetary policy can restrain the overall leverage level, and thus further exacerbate structural leverage problems. The People's Bank of China recently implemented various structural monetary policy instruments, such as the targeted medium-term lending facility, and monetary policy thus began to show structural features. Thus, making the optimal choice between tradition-oriented and structure-oriented monetary policy instruments, and exerting the structural adjustment effect of the structural monetary policy, have become important variables that must be considered when resolving the policy of structural leverage. Existing studies analyze the leverage problem and monetary policy responses from various perspectives, and many ideas and methods are proposed. However, the assumptions, leverage characteristics, and policy operation modes of foreign markets are quite different from those of China. Most Chinese studies focus on quantitative descriptive and qualitative analyses, while policy analysis is limited to the responses of the traditional monetary policy. To accurately identify the causes of structural leverage and to understand the effects and mechanisms of different choices of monetary policy instruments on resolving structural leverage, we systematically study this issue from two perspectives: empirical analysis and theoretical analysis. In our empirical analysis, we identify the relationship among different economic cycles, credit allocation bias, and changes in the leverage structure of enterprises, and examine the effect of traditional monetary policy using a panel regression model based on the annual data of China's 34 industrial sectors. The results indicate that the existence of credit allocation bias leads to heterogeneity in the leverage of enterprises with different property rights, which causes the structural leverage phenomenon to vary in the different stages of the economic cycle, and traditional monetary policy tools cannot easily solve the structural leverage problem. In the theoretical analysis, we combine the asymmetric investment and leverage change effects due to credit allocation bias in our DSGE model to identify the generation mechanism of these effects, and the optimal selection of monetary policy instruments in structural deleveraging. We find that tradition-quantity instrument is a better choice when addressing the structural leverage problem under the shock of technology, and that an appropriate combination of tradition-oriented and structure-oriented instruments is a better choice when addressing structural leverage under a price shock. In addition, if the economy is faced with the co-existence of structural leverage and an economic downturn under the shock of economic risk, structure quantity instruments are necessary to reduce the loans of state-owned enterprises, and structure price instruments are necessary to reduce the loan costs for private enterprises.
殷兴山, 易振华, 项燕彪. 总量型和结构型货币政策工具的选择与搭配——基于结构性去杠杆视角下的分析[J]. 金融研究, 2020, 480(6): 60-77.
YIN Xingshan, YI Zhenhua, XIANG Yanbiao. The Selection and Co-location of Traditional and Structure Monetary Policy Instruments: An Analysis from the Perspective of Structural Leverage Resolving. Journal of Financial Research, 2020, 480(6): 60-77.
Abel. A., and J. Eberly, 1999. “Investment and q with Fixed Costs: An Empirical Analysis”, working paper, Wharton school,University of Pennsylvania.
[24]
Bernanke B. S., and M. Gertler., 1995. “Inside the Black Box:The Credit Channel of Monetary Policy Transmission”, The Journal of Economic Perspectives,9(4): 27～48.
[25]
Calvo G. A., 1983. “Staggered Prices In a Utility-Maximizing Framework”, Journal of Monetary Economics, 12: 383～398.
[26]
Cecchetti, S.G., M. S. Mohanty, and F. Zampolli., 2011. “The Real Effects of Debt”, Working Paper, BIS.
[27]
Elekdag, S. and Y. Wu., 2011. “Rapid Credit Growth: Boon or Boom～Bust？” Working Paper, IMF.
[28]
Fagnart, J. F., O. Licandro,and F. Portier., 1999. “Firm Heterogeneity, Capacity Utilization, and the Business Cycle”, Review of Economic Dynamics,2(2):433-455.
[29]
International Monetary Fund. 2015. “Vulnerabilities, Legacies, and Policy Challenges Risks Rotating to Emerging Markets,” Global Financial Stability Report, IMF.
[30]
Mendoza, E. and M. Terrones., 2008. “An Anatomy of Credit Booms: Evidence from Macro Aggregates and Micro Data”, Working Paper,NBER.
[31]
Schularick, M. and A. M. Taylor., 2012. “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870～2008”, American Economic Review, 102(2):1029～1061.
