The unintended interaction effect of monetary and macroprudential policies: Evidence from China's bank-level data

We investigate the unintended interaction effect of monetary and macroprudential policies on banks' broad credit, using Chinese bank-level data from 2005 to 2019. According to our findings, tightening both macroprudential and monetary policies simultaneously in China expands broad credit, which differs from traditional empirical findings in other countries that such policy conditions typically result in credit contraction. We reveal that the non-deposit funding channel drives the unintended surge in broad credit under the interaction of macroprudential and monetary policy.