On the People's Bank of China's financial strength and policy outcomes

This paper measures the financial strength of the People's Bank of China from the perspective of balance sheets, and then examine empirically whether its financial strength influences its policy commitments given its financial conditions. The econometric results suggest that, first, the financi...

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Bibliographic Details
Published in:Journal of Central Banking Theory and Practice (Podgorica) 2020-09, Vol.9 (3), p.135-161
Main Author: Sun, Lixin
Format: Article
Language:English
Subjects:
Balance Sheet Analysis
Balance sheets
Bank examinations
Bank examiners
Central banks
E31
E52
E58
Econometrics
Financial Strength
Inflation
Influence
International finance
Macroeconomics
Monetary policy
Policy Performance
Profits
Stress Testing
The People's Bank of China
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Summary:This paper measures the financial strength of the People's Bank of China from the perspective of balance sheets, and then examine empirically whether its financial strength influences its policy commitments given its financial conditions. The econometric results suggest that, first, the financial strength of the People's Bank of China does affect its policy performance, although the effects are weak and overall results lack robustness with respect to the econometric technique and the choice of alternative measures of financial strength. Second, alternative financial strength indicator plays different role in helping the People's Bank of China achieve its alternative policy objectives. Therefore, maintaining benign financial conditions and a resilient balance sheet are necessary pre-conditions for the People's Bank of China to achieve desirable policy outcomes. Third, the People's Bank of China's current standalone finance is healthy under our stressing tests, despite certain concerns attained.
ISSN:2336-9205
1800-9581
2336-9205
DOI:10.2478/jcbtp-2020-0041