Advanced Search
MyIDEAS: Login

A Monetary Conditions Index for Mainland China

Contents:

Author Info

  • Wensheng Peng

    (Research Department, Hong Kong Monetary Authority)

  • Frank Leung

    (Research Department, Hong Kong Monetary Authority)

Abstract

Economic and financial developments on the Mainland have important implications for Hong Kong. This paper presents an empirical framework for assessing monetary and financial conditions on the Mainland by estimating a monetary conditions index (MCI). An MCI is usually defined as a weighted sum of some measures of real interest rate and the real effective exchange rate (REER). Because bank credit is an important channel of monetary policy transmission mechanism in Mainland China, this study extends the conventional MCI by including a quantity variable to capture the credit availability effect. Estimates suggest that, in terms of the effect on real GDP growth, a rise in real interest rates by 1 percentage point is equivalent to an increase in REER appreciation by about 4 percentage points or a fall in real credit growth by 2.5 percentage points. The estimated MCI suggests a sharp easing in monetary conditions in 2002-2003, reflecting a weaker US dollar, relaxed credit stance of banks, and easing of deflation which reduced real interest rates. The fall in the MCI is equivalent to a decline of about 10 percentage points in real interest rates during the period. Easy monetary conditions have contributed to an acceleration in economic growth since 2002. Fears of overheating pressures prompted the authorities to implement administrative measures in early 2004 to curb credit supply to selected sectors and raise interest rates in late October 2004. The estimated MCI suggests that the tightening of monetary conditions is equivalent to a rise in real interest rates by about 4.6 percentage points.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.info.gov.hk/hkma/eng/research/RM01-2005.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Hong Kong Monetary Authority in its series Working Papers with number 0501.

as in new window
Length: 17 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:hkg:wpaper:0501

Contact details of provider:
Postal: 55th Floor, Two International Finance Centre, 8 Finance Street, Central
Phone: (852)28788261
Fax: (852)28781892
Email:
Web page: http://www.info.gov.hk/hkma/
More information through EDIRC

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Dong He & Frank Leung & Philip Ng, 2007. "How Do Macroeconomic Developments in Mainland China Affect Hong Kong's Short-term Interest Rates?," Working Papers 0717, Hong Kong Monetary Authority.
  2. Arjeta Vokshi (Abazi), 2013. "A Monetary Conditions Index For Albania," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(15), pages 18.
  3. Wai-Ching Poon, 2010. "A monetary policy rule: The augmented Monetary Conditions Index for Philippines using UECM and bounds tests," Development Research Unit Working Paper Series 04-10, Monash University, Department of Economics.
  4. Vararat Khemangkorn & Roong Poshyananda Mallikamas & Pranee Sutthasri, 2008. "Inflation Dynamics and Implications on Monetary Policy," Working Papers 2008-02, Economic Research Department, Bank of Thailand.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hkg:wpaper:0501. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simon Chan).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.