Sectoral Effect Of Monetary Policy In China

The sectoral effect of monetary policy is the sectoral asymmetries in monetarypolicy transmission, namely different industries respond differently to monetarypolicy shock. However, most of the researches in this area have been concentrating onthe aggregate level of the economy and ignore possible asymmetries on disaggregatelevels, such as sectors and regions of the economy.China is still on the stage of industrial structure adjustment and optimization andthe imbalance of different industries is a significant feature of China’s development.In recent years the central bank has adjusted the deposit-reserve ratio and raised theinterest rate repeatedly. Under such macroeconomic and financial conditions, basedon the theories of monetary policy transmission mechanism and industryheterogeneity, we explore the presence of sectoral effect with respect to monetarypolicy in China and further explore the reasons of such sectoral effect. Therefore, thisarticle is of great significance both theoretically and practically.In this article we firstly summarize different views of the monetary transmissionmechanism, and theoretically analyze the relationship between industry heterogeneityand sectoral effect of monetary policy. Then, by establishing the SVAR model weexplore the effects of China’s monetary policy on39industrial sub-sectors. Theresults of impulse response show that the output and price level of the selected sectorsreact to monetary policy differently in its direction, degree and duration. Thus weconfirm the sectoral effect of monetary policy in China.Accordingly we choose thirteen indicators that characterize attributes of eachsector, and explore the factors which may explain the sectoral effect using PrincipalComponent Analysis and Spearman rank correlation test. The results show that thefundamental reasons which make the sectoral effect of China’s monetary policy arethose factors reflecting the financial structure of a industry, such as asset-liabilityratio, current ratio, current assets proportion and total assets contribution. Specifically,asset-liability ratio correlates to the sectoral effect positively, meaning that the monetary policy shock has more effect on sectors with higher asset-liability ratio.Indicators like current ratio, current assets proportion and total assets contributioncorrelate to the sectoral effect negatively, indicating that sectors with more currentassets and better profitability suffer less from the monetary policy shock.