RESEARCH ON THE MACRO NET FINANCIAL ASSETS VALUE EFFECT OF MONETARY POLICY
The financial crisis is a manifestation of excessive debt, the so-called balance sheet recession (Krugman, 2014). A typical feature of a balance sheet recession is that the business objectives of most companies have been changed from profit maximization to debt minimization due to increased liabilities, and the decline in credit demand prolonged the recession. The continued accumulation of excessive debt burdens as well as an abrupt drop of debt scale may increase the probability of a financial crisis (Cecchetti et al., 2011; Khoo et al., 2017; Jarmuzek & Rozenov, 2019). The countries like Japan, the United States, the United Kingdom, Spain and Ireland experienced severe debt expansion during the crisis (Koo, 2011). Koo (2015) believes that the global economic recession in 2008 is essentially the same as the Japanese economic recession that began in the early 1990s. These phenomena motivated academics and policymakers to examine the cause and policy mitigation of excessive debt.
Jméno a příjmení autora:
Xiaoting Wang, Peilong Shen, Iveta Palečková
Macro balance sheet, monetary policy, interest rate, net financial assets value
DOI (& full text):
This paper focuses on the impact of Chinese and US monetary policy on the net financial assets value of macro balance sheet from both theoretical and empirical aspects and reveals the sectoral…více
This paper focuses on the impact of Chinese and US monetary policy on the net financial assets value of macro balance sheet from both theoretical and empirical aspects and reveals the sectoral solvency risk conduction path based on the balance sheet channel. In addition, the paper is focused on the effects of the interest rate as a target tool for monetary policy on the macro net financial assets. In the theoretical analysis, the net present value model of the economy is constructed, and a general equilibrium model representing the relationship between the real interest rate and net asset value of five sectors is derived (government, financial, resident, enterprise and central bank sector). This model explains the basic principle how interest rates affect net financial assets values. The dataset includes the central bank, commercial banks and shadow banks, and the stock and equity liabilities of the debtor are taken as the net asset of financial institutions during the period 2000–2016. The empirical results show that an increase in the real deposit interest rate improves the net financial assets value of the four sectors, and an increase in the real loan interest rate reduces the net financial assets value of the four sectors, while the effect of the real loan interest rate is greater than the real deposit interest rate. The effect ranking of interest rates on the four sectors is financial, enterprise, government, and resident sector. Overall, loose monetary policies can reduce macro-financial risks through the balance sheet channel, while the negative effects of long-term low-interest policies should be prevented; the macro-policies should hedge sectoral risks triggered by the exit of the easing policy via the macro balance sheet channel.