Greening Monetary Policy: Evidence from the People's Bank of China

24 Pages Posted: 10 May 2021 Last revised: 21 Jun 2021

See all articles by Banque de France RPS Submitter

Banque de France RPS Submitter

affiliation not provided to SSRN

Camille Macaire

Université d'Auvergne - Clermont 1, Centre d'Etudes et de Recherches sur le Developpement International (CERDI), Students

Alain Naef

University of California, Berkeley - Department of Economics

Date Written: May 1, 2021

Abstract

In June 2018, the People’s Bank of China (PBoC) decided to include green financial bonds into the pool of assets eligible as collateral for its Medium Term Lending Facility. The PBoC also gave green financial bonds a “first-among-equals” status. We measure the impact of the policy on the yield spread between green and non-green bonds. We show that pre-reform trends are minor, meaning that both green and non-green bonds yields evolved similarily at the time of the reform. Using a difference-in-differences approach, we show that the policy increased the spread by 46 basis points. Our approach differs from the literature in that we match bonds under review with non-green bonds with similar characteristics and issued by the same firm, which improves the relevance of firm fixed-effects. We also specifically investigate the impact on green bonds. The granularity of the data (daily) also allows us to conduct a dynamic analysis by dividing the sample into weekly, monthly and quarterly observations. Our results also show that the impact of the reform starts to materialize after three weeks, has a maximum effect after three months, and has a persistent effect over six months.

Keywords: People’s Bank of China, Central Bank Collateral Framework, Green Bonds, Bond Yields, Greenium

JEL Classification: E52, E58, Q51, Q54, G12, G18

Suggested Citation

RPS Submitter, Banque de France and Macaire, Camille and Naef, Alain, Greening Monetary Policy: Evidence from the People's Bank of China (May 1, 2021). Banque de France Working Paper No. 812, Available at SSRN: https://ssrn.com/abstract=3842803 or http://dx.doi.org/10.2139/ssrn.3842803

Banque de France RPS Submitter

affiliation not provided to SSRN

Camille Macaire (Contact Author)

Université d'Auvergne - Clermont 1, Centre d'Etudes et de Recherches sur le Developpement International (CERDI), Students ( email )

65 Boulevard Francois Mitterrand
63000 Clermont-Ferrand Cedex 1
France

Alain Naef

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

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