Research On The Impact Of The Broad Credit Channel Under The Constraint Of Interest Rates

Starting from the micro mechanism of the broad credit channel, this thesis hastaken the characteristic of China’s financial market into consideration, and analysesthe impact of interest rate liberalization process, the property right of the enterpriseheterogeneity on the broad credit channel with the data of unlisted companies.The thesis is divided into five parts. First part is introduction, mainly introducesthe background of this thesis’s topic, the significance of the study, the main researchcontent and the frame of the thesis. The second part, theoretical basis and literaturereview, carries on the summary and review of the theory of monetary policytransmission mechanism, summarizes several main monetary policy transmissionchannels, sorts out the existing literature of the broad credit channel, interest rateliberalization and enterprise heterogeneity. The third part, theoretical analysis,introduces new constraints to Oliner’s (1996) standard model of broad credit channeland builds an extended model of broad credit channel for China’s monetary policy andputs forward two hypotheses. The fourth part, empirical analysis, tests the twohypotheses with a sample of China’s unlisted companies during1998-2007in twodifferent models. The last part shows the conclusion and policy implications of thisthesis.In this thesis, our research shows that interest rate liberalization does not alwayshave affirmative effect on investment as we usually think. Though the process ofinterest rate liberalization covers the gap of supply and demand of the capital market,a rise of interest increases the cost of companies’ external financing, given that thefinancial friction remains constant. However, the rise of the proportion of state-ownedenterprises reduces the cost of companies’ external financing, because state-ownedenterprises face little financial friction.The policy implications of this study includes that financial friction should beconsidered in carrying out monetary policy, financial friction reduction shouldprecede complete interest rate liberalization, and the impact of state-owned enterprises’ growth should be reviewed given that the financial friction remains constant.