The effects of differentiated reserve requirement ratio policy on the earthquake-stricken area in China

Abstract

In June, 2008, the People’s Bank of China (PBC) decided to implement Differentiated Reserve Requirement Ratio (DRRR) policy in the earthquake-stricken counties in Sichuan province in order to help the reconstruction of these areas which suffered the big earthquake. The purpose of this study is to examine the role of this DRRR policy on the disaster area. This paper compares the effects of DRRR policy on the earthquake-stricken counties with that of the normal Reserve Requirement Ratio (RRR) on the other counties using panel data analysis during 2008-2011. The results confirm that this preferential DRRR policy can really quicken the recovery process in the earthquake-stricken counties. This DRRR policy reflects that the PBC starts to use differentiated monetary policy to guide credit funds flow to the area which government policy focus on. Monetary policy begins to play a role in adjusting and optimizing economic structure. Due to large regional disparity, the PBC can consider expand the application of this DRRR policy to more less developed regions to make a more coordinated regional economic development in China.