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Dynamics of monetary policy regimes in China under rising global uncertainty: A time-varying approach

Author

Listed:
  • Oh, Eun Young
  • Magkonis, Georgios
  • Zhang, Shuonan

Abstract

This paper studies how China’s monetary policy has responded to global uncertainty under different policy regimes. Using a time-varying parameter VAR with stochastic volatility (TVP-VAR-SV) and monthly data from 2002–2020, the analysis identifies regime dependence. In the 2000s, uncertainty shocks generated sharp declines in output and inflation and were accompanied by accommodative policy easing. Under the 2010s “new normal”, both real and policy responses became smaller and more stable. Monetary adjustments are more closely related to inflation overshooting than to output deviations, indicating a stronger forward-looking orientation toward inflation stabilization. These results suggest that the evolution of China’s monetary framework has increased its resilience to external uncertainty. The main findings are robust across alternative policy instruments and remain unchanged when the exchange rate is incorporated into the analysis.

Suggested Citation

  • Oh, Eun Young & Magkonis, Georgios & Zhang, Shuonan, 2026. "Dynamics of monetary policy regimes in China under rising global uncertainty: A time-varying approach," Finance Research Letters, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:finlet:v:92:y:2026:i:c:s1544612326000541
    DOI: 10.1016/j.frl.2026.109523
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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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