State Ownership, Asset Prices, and Monetary Policy Transmission: A Tale of Two Sectors

We study the role of firm heterogeneity in state-ownership and productivity in monetary policy transmission in China. Empirically, we document that the impact of monetary supply shocks on firms' risk premia and corporate decisions varies substantially both within and across state-owned enterprises (SOEs) and private-owned enterprises (POEs). We develop and estimate a dynamic heterogeneous firm model with monetary supply shocks and financial frictions to interpret the empirical findings. The model shows that more severe frictions in accessing debt markets for POEs exacerbates capital misallocation in times of contractionary monetary shocks, leading to sizable losses in aggregate productivity and output.

Keywords: State ownership, monetary policy transmission, financial frictions, POE, SOE, risk premiums

JEL Classification: D53, E22, E44, E51, E52, G12, G32

Suggested Citation: Suggested Citation

Belo, Frederico and Hao, Dapeng and Lin, Xiaoji and Qiu, Zhigang and Tong, Jincheng, State Ownership, Asset Prices, and Monetary Policy Transmission: A Tale of Two Sectors (October 19, 2023). Available at SSRN: https://ssrn.com/abstract=3966723 or http://dx.doi.org/10.2139/ssrn.3966723