A Tale of Two Monetary Transmissions: Evidence from State-Owned Enterprises in China

Monetary authorities use contractionary monetary policy to rein in inflation pressure and expansionary monetary policy to stimulate economic growth. However, economists had noticed that the responses to these two types of policy shocks might not be equal. In this paper, we first use local projection methods proposed by Jorda to compute the impulse responses of monetary policy shocks in China under different regimes of output growth and inflation rates. The results show that the responses are asymmetric. We further explored a possible mechanism for such phenomenon that China has a characteristic institutional arrangement that state-owned enterprises (SOEs) with favorable access to financing exist. Using sector-specific macroeconomic time series and state-dependent local projections, we provide evidence that SOEs and private-owned enterprises (POEs) in China respond heterogeneously to different types of monetary policy shocks. Based on a firm-level dataset, we also provide micro evidence that SOEs benefit more from a monetary easing and suffer less from a monetary tightening compared to POEs in terms of leverage ratio, and thus, confirms the asymmetric transmission.