2018/07/18 by Ruoxi Lu, David A. Bessler, David J. Leatham
Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Business #China #Economics #Finance #Financial market #Financial system #Global Financial Crisis and Policies #Insurance and Financial Risk Management #Liquidity crisis #Liquidity risk #Market impact #Market liquidity #Market microstructure #Market segmentation #Microeconomics #Monetary economics #Monetary policy #Money market #Order (exchange) #econ.GN #q-fin.EC
paper · pdf · doi:10.1016/j.intfin.2018.07.005
published as Lu, R., et al. The transmission of liquidity shocks via China's segmented money market: Evidence from recent market events. J. Int. Financ. Markets Inst. Money (2018) · 38 pages, 13 figures, 1 table, in press
openalex publication_date 2018/07/18 · openalex created_date 2018/08/03 · arxiv created 2018/11/21 · arxiv updated 2018/11/26 · openalex updated_date 2026/08/05
This is the first study to explore the transmission paths for liquidity shocks in China's segmented money market. We examine how money market transactions create such pathways between China's closely-guarded banking sector and the rest of its financial system, and empirically capture the transmission of liquidity shocks through these pathways during two recent market events. We find strong indications that money market transactions allow liquidity shocks to circumvent certain regulatory restrictions and financial market segmentation in China. Our findings suggest that a widespread illiquidity contagion facilitated by money market transactions can happen in China and new policy measures are needed to prevent such contagion.