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Measuring the monetary policy stance of the People's bank of china: An ordered probit analysis

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  • Xiong, Weibo
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    Abstract

    The People's Bank of China (PBC) has employed a range of different instruments in the implementation of its monetary policy over the past decades, so perhaps no single instrument would constitute an adequate representation of the monetary policy stance. We thus develop a new policy stance index, and examine it in an ordered probit model, which follows the studies by Gerlach (2004) and He and Pauwels (2008). The empirical results show that in a backward-looking model, monetary policy reacts to actual output growth; one the other hand, when deviations from trend levels are considered, the PBC concerns inflation most seriously. In a forward-looking model, when we examine the PBC's statements in its quarterly Monetary Policy Executive Report from 2001Q1 to 2010Q3, it seems that the PBC's assessment of the prospects for inflation plays a key role determining the PBC's monetary policy stance. Our conclusions suggest that the PBC is informally targeting inflation, although no explicit target has ever been announced to the public by the PBC.

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    Bibliographic Info

    Article provided by Elsevier in its journal China Economic Review.

    Volume (Year): 23 (2012)
    Issue (Month): 3 ()
    Pages: 512-533

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    Handle: RePEc:eee:chieco:v:23:y:2012:i:3:p:512-533

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    Web page: http://www.elsevier.com/locate/chieco

    Related research

    Keywords: Monetary policy stance; Monetary reaction function; Monetary policy; People's Bank of China;

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    References

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    Cited by:
    1. William H.Greene & Max Gillman & Mark N. Harris & Christopher Spencer, 2013. "The Tempered Ordered Probit (TOP) model with an application to monetary policy," Discussion Paper Series 2013_10, Department of Economics, Loughborough University, revised Sep 2013.
    2. "Belderbos, Rene & Ikeuchi, Kenta & Fukao, Kyoji & Kim, Young Gak & Kwon, Hyeog Ug, 2013. "Plant Productivity Dynamics and Private and Public R&D Spillovers: Technological, Geographic and Relational Proximity," CEI Working Paper Series 2013-05, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    3. Hyeongwoo Kim, 2014. "Estimating Interest Rate Setting Behavior in Korea: An Ordered Probit Model Approach," Auburn Economics Working Paper Series auwp2014-02, Department of Economics, Auburn University.

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