Political incentives and the effectiveness of monetary policy: evidence from China’s city commercial banks

ABSTRACT

From the perspective of official-and-director (OAD), this article takes studies of the effect of monetary policy on bank loans to the heterogeneity of bank. We explore how political incentives affect the lending channel of monetary policy transmission, using a sample of China’s city commercial banks during 2006–2014. And we further analyse the role of OAD’s characteristics, including administrative rank and age. The results indicate that although tight monetary policy can reduce bank loans, the OAD can weaken this relationship, and the higher is the administrative rank of OAD, the larger is the effect. And the older is OAD, the larger is the effect. More importantly, the relationship between monetary policy and bank loan is insignificant in banks with OAD, implying that the lending channel of monetary policy is absent when considering the role of OAD.

KEYWORDS:

• Political incentives
• official-and-director
• monetary policy
• lending
• city commercial banks

JEL CLASSIFICATION:

• E52
• G21
• G28

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by National Natural Science Foundation of China [71302088], the Major Project of National Social Science Foundation of China [12ZD069] and the Young Scholars’ Program of Shandong University [2015WLJH13].