Work

The impact of expansionary quantity- and price-based monetary policies on investment in China: Insights from corporate financialization

Year: 2026

Type: article

Abstract: We examine whether China’s expansionary quantity-based (QMP) and price-based (PMP) monetary policies stimulate investment, and how corporate financialization shapes their transmission. To isolate the exogenous variation in QMP and PMP separately, we identify the two shocks in a four-variable SVAR using combined traditional and narrative sign restrictions. At both the firm and macro levels, expansionary QMP raises investment by a statistically significant but economically modest margin, while expansionary PMP significantly reduces it. QMP mainly raises investment in state-owned enterprises (SOEs) and in firms with loose financial constraints, the two segments that bank credit tends to favor. Yet within these segments, their existing financial-asset holdings absorb part of the incoming liquidity rather than let it flow into fixed investment, dampening the transmission of QMP where its credit lands.

Source: International Review of Economics & Finance

DOI: 10.1016/j.iref.2026.105766

Authors: Yichao Mo, Youqiang Ding, Kexin Ouyang, Yifan Tan, Ziqi Wang

Institutions: Tongling University, Southwestern University of Finance and Economics, Dalian University of Technology

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: gold

Estimated APC paid: $1,930