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Business & Economics

THE INCLUSIVE FINANCIAL EFFECTS OF UNCONVENTIONAL MONETARY POLICY: EVIDENCE FROM MICRO AND SMALL ENTERPRISES⁴
Yinshuang Liu, Xinrong Zhu

ABSTRACT: The development of inclusive finance relies on central banks to innovate and use a variety of unconventional monetary policy tools to enhance the targeted regulation of specific areas. Whether such unconventional monetary policies can target support to weak segments to alleviate the financing constraints of micro and small enterprises (MSEs) remains to be verified. Therefore, to explore the inclusive financial effects of unconventional monetary policy, a FAVAR model was constructed by using quarterly financial data from MSEs and panel data containing a combination of macro information and monetary policy in China from 2014 to 2020, the control effects of two types of unconventional monetary policy instruments, quantitative and price-based policies, on credit financing were analyzed. Results show that the control effect of unconventional policies on the development of inclusive finance emerges gradually, mainly by guiding financial institutions to increase credit allocation to targeted MSEs and a certain extent extending the coverage of financial services to the real economy. However, the capacity of unconventional monetary policy regulation to alleviate the financing constraints of MSEs is still limited by the current credit principles and behavioral attributes of commercial banks that would otherwise serve MSEs. The conclusions provide empirical references for further optimizing unconventional monetary policy tools for targeted regulation of key areas and enhancing the capacity of inclusive financial services.

KEYWORDS:  unconventional monetary policy, credit availability, micro and small enterprises (MSEs), FAVAR model.

JEL classification:  D22, E58, G21.

⁴Acknowledgments:  This study was supported by the Doctoral Research Innovation Project of Zhongnan University of Economics and Law (No. 202110589).