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Whose confidence matters in Chinese monetary policy?

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  • Zhang, Chengsi
  • Sun, Yuchen
  • Tang, Di

Abstract

Whose confidence matters in Chinese monetary policy—consumers or entrepreneurs? To answer this question, we first conduct a competition test between the two groups and find that the entrepreneurs' confidence plays a much more dominant role than the consumer confidence in the transmission process of monetary policy. In addition, we use counterfactual structural vector autoregression method to isolate and identify the effect of confidence. The empirical results show that the effectiveness of proactive monetary policy will be strikingly reduced if the channel of entrepreneurs’ confidence is shut down. Removing the effect of consumer confidence from the system, however, produces little impact on the effectiveness of monetary. These findings are robust to both price-based and quantitative-based policy variables in China.

Suggested Citation

  • Zhang, Chengsi & Sun, Yuchen & Tang, Di, 2019. "Whose confidence matters in Chinese monetary policy?," International Review of Economics & Finance, Elsevier, vol. 60(C), pages 188-202.
    • Handle: RePEc:eee:reveco:v:60:y:2019:i:c:p:188-202
    DOI: 10.1016/j.iref.2018.11.003
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    3. Veronika Kajurová & Dagmar Vágnerová Linnertová, 2022. "The Nexus between Monetary Policy and Commercial Lending Rates: Comprehensive Evidence from Czechia during Different Policy Stances," Eastern European Economics, Taylor & Francis Journals, vol. 60(4), pages 330-351, July.

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    More about this item

    Keywords

    Confidence; Monetary policy; Competition test; Counterfactual analysis; SVAR;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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