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China Monetary Policy Transmission in China: Dual Shocks with Dual Bond Markets

Author

Listed:
  • Makram El-Shagi
  • Lunan Jiang

    (Center for Financial Development and Stability at Henan University, Kaifeng, Henan)

Abstract

Although China's monetary and financial system differs drastically from its Western counterpart, empirical studies covering this vast economy (the largest by some accounts) have often been simple reestimations or recalibrations of models that have originally been designed to describe US or European monetary policy. In this paper, we aim to provide an assessment of Chinese monetary policy and in particular monetary policy transmission through the bond market into the real economy, which takes into account the peculiarities of the Chinese market. Namely, our model includes both China's modern attempts at a market based policy shock as well as the "authority" based monetary policy that is a relic of the original banking system; it considers the special nature of the Chinese treasury bond market which is separated in two independent markets with very limited direct arbitrage opportunities between almost identical assets, and finally it incorporates the role of real estate, which played an essential role in China during the last decade.

Suggested Citation

  • Makram El-Shagi & Lunan Jiang, 2017. "China Monetary Policy Transmission in China: Dual Shocks with Dual Bond Markets," CFDS Discussion Paper Series 2017/2, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    • Handle: RePEc:fds:dpaper:201702
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    References listed on IDEAS

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    Cited by:

    1. Sun, Rongrong, 2020. "Monetary policy announcements and market interest rates’ response: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 113(C).
    2. Rongrong Sun, 2021. "Requiem for the interest rate controls in China," Pacific Economic Review, Wiley Blackwell, vol. 26(2), pages 139-160, May.
    3. Yinghui Chen & Lunan Jiang, 2021. "Liquidity risk and corporate bond yield spread: Evidence from China," International Review of Finance, International Review of Finance Ltd., vol. 21(4), pages 1117-1151, December.
    4. Makram El-Shagi & Lunan Jiang, 2019. "Efficient Dynamic Yield Curve Estimation in Emerging Financial Markets," CFDS Discussion Paper Series 2019/4, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    5. Makram El-Shagi & Yishuo Ma, 2021. "Nine blind men and the PBoC," CFDS Discussion Paper Series 2021/2, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.

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    More about this item

    Keywords

    monetary policy; yield curve; market segmentation;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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