We study how monetary policy reallocates bank credit across loan contracts relevant for innovation financing. We construct a new firm–bank branch–loan type–quarter data set from Chinese NEEQ-listed firms and show that expansionary monetary shocks increase lending mainly through unsecured credit. This response is stronger for non-state banks and is concentrated among firms with recent patenting activity. We develop a simple general equilibrium model in which innovation lowers pledgeable collateral and banks choose between secured and unsecured lending under limited liability and a Value-at-Risk constraint. Monetary easing compresses unsecured-secured loan spreads, raises demand for unsecured borrowing, and induces a larger unsecured-loan response by non-state banks. Easing supports innovation financing by expanding unsecured credit, but it also raises default risk, especially among non-state banks. The results point to a loan composition channel of monetary policy and a macroprudential trade-off between financing innovation and preserving financial stability.

Cash flows generated from corporate earnings (EBITDA) significantly stimulate corporate borrowing and investment, and amplify firms’ investment responses to expansionary monetary policy shocks. Based on data from China, our analysis reveals that these effects are concentrated among firms with lower financial frictions—namely large firms, state-owned enterprises (SOEs), and mature firms—whereas small, private, and young firms fail to effectively convert profitability improvements into external financing. We identify a credit loan channel: following monetary easing, high-EBITDA firms gain greater access to unsecured credit, thereby boosting investment. We develop a New Keynesian DSGE model featuring heterogeneous firms and earnings-based borrowing constraints that rationalizes these findings and reveals an important aggregate implication: when economic downturns depress firm profitability, the effectiveness of monetary stimulus is attenuated.

We study how local banking competition shapes monetary policy transmission through loan composition and bank–firm relationships. Using a novel firm–bank branch–loan type–quarter data set for Chinese NEEQ-listed firms, we show that following monetary easing, banks in more competitive local markets expand credit more strongly along the extensive margin and rely less on loan guarantees.

We study how production networks shape self-fulfilling price movements. For aggregate sentiment, input-output linkages can sustain self-fulfilling fluctuations when firms’ exposure to common prices is sufficiently aligned with their sourcing patterns. With sectoral sentiments, network feedback can propagate locally supported beliefs across sectors and, under cross-sector price signals, sustain sentiment-driven price comovement even when no sector can do so in isolation.

We show that China’s AI Pilot Zone policy reduces wage markdowns by stimulating firm entry and strengthening local labor market competition. We rationalize these findings in a NK-DSGE model with endogenous entry and labor market power, and use the model to study how place-based industrial policies reshape the transmission of aggregate macroeconomic policies.

We document that product markups and wage markdowns move in opposite directions following monetary easing in China: product-market competition intensifies while labor market power rises. We rationalize this pattern in a NK-DSGE model with endogenous product and labor market power, where flattened price- and wage-Phillips curves amplify the real effects of monetary easing while dampening its inflationary impact. When hand-to-mouth households are prevalent, stronger labor market power further weakens the transmission from monetary easing to household consumption, implying a larger role for policies that directly raise disposable income, such as wage support, transfers, or cash subsidies.