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Empirical Economics

, Volume 57, Issue 3, pp 1023–1044 | Cite as

Involuntary excess reserve and heterogeneous transmission of policy rates to bank lending rates in China

  • Thai V. H. Nguyen
  • Agyenim BoatengEmail author
  • Tra Thi Thu Pham
Article
  • 108 Downloads

Abstract

This study examines the impact of liquidity and involuntary excess reserves on interest rate pass-through in China. Employing Error Correction Model estimation based on a sample of 86 banks over the period of 2000–2013, the study finds that liquid banks can better shield against tightening monetary policy and adjust lending rate sluggishly. In contrast, banks with larger involuntary excess reserves tend to increase lending interest rates more rapidly in response to tightening monetary policy. We conclude that unwanted liquidity may lead to risk-taking behaviours which are detrimental to financial stability.

Keywords

Liquidity Excess reserves Interest rates Banks China 

Notes

Acknowledgements

We are grateful to the Editor - Robert Kunst and the anonymous reviewer for the insightful feedback during the review process.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  • Thai V. H. Nguyen
    • 1
  • Agyenim Boateng
    • 2
    Email author
  • Tra Thi Thu Pham
    • 1
  1. 1.School of Business and ManagementRMIT University VietnamHo Chi Minh CityVietnam
  2. 2.Glasgow School of Business and SocietyGlasgow Caledonian UniversityGlasgowUK

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