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State-owned Sector and the Effectiveness of Monetary Policy in China

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  • Zheng Jiang
  • Shen Guo
  • Huimin Shi

Abstract

Based on a standard two-sector New Keynesian sticky price model, we show that the response of sectoral output share to a monetary policy shock can be used to assess the relative price stickiness between the state-owned and private sectors in China. Specifically, the output share of the sector with more price stickiness increases to a positive monetary shock. A structural VAR analysis on the Chinese industrial data confirms that the price is stickier in the state-owned sector. This result implies that the real effect of monetary policy at the aggregate level in China would diminish along with the potential decline of the state-owned sector.

Suggested Citation

  • Zheng Jiang & Shen Guo & Huimin Shi, 2021. "State-owned Sector and the Effectiveness of Monetary Policy in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(11), pages 3254-3274, September.
    • Handle: RePEc:mes:emfitr:v:57:y:2021:i:11:p:3254-3274
    DOI: 10.1080/1540496X.2019.1693360
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