Chinese Local Bond Spreads, Monetary Policy and 'Misallocation'

42 Pages Posted: 16 Apr 2018

See all articles by Robert Dekle

Robert Dekle

University of Southern California - Department of Economics

Andrew Tsang

Hong Kong Monetary Authority

Date Written: March 1, 2018

Abstract

We examine the impact of Chinese monetary policies on the excess bond yields of Chinese local bonds issued by Chinese local government entities. We find that an expansion in M2 generally raises the excess yields of the bonds of Chinese local government entities, and the impact is amplified for local bonds issued by local governments that are characterized as having a high degree of existing resource misallocation. Our estimation results confirm that local government bond excess yields can be used as an indicator of the riskiness of Chinese local government debt.

Keywords: Chinese Local Bonds, Monetary Policy, Misallocation

JEL Classification: G12, E50, H81

Suggested Citation

Dekle, Robert and Tsang, Andrew, Chinese Local Bond Spreads, Monetary Policy and 'Misallocation' (March 1, 2018). USC-INET Research Paper No. 18-06. Available at SSRN: https://ssrn.com/abstract=3162353 or http://dx.doi.org/10.2139/ssrn.3162353

Robert Dekle (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States
213-740-8335 (Phone)

Andrew Tsang

Hong Kong Monetary Authority ( email )

55/F, Two International Finance Centre
Hong Kong
Hong Kong

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