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. We develop and estimate a dynamic model with heterogeneous firms -- state-owned enterprises (SOEs) and private-owned enterprises (POEs), monetary supply shocks, and financial frictions. We show that firm's responses to monetary supply shocks and risk premiums vary substantially both within and across SOEs and POEs, consistent with the data. Through counterfactual analysis, we show 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 (January 3, 2024). Available at SSRN: https://ssrn.com/abstract=3966723 or http://dx.doi.org/10.2139/ssrn.3966723