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To Guide or Not to Guide? Quantitative Monetary Policy Tools and Macroeconomic Dynamics in China

Author

Listed:
  • Hongyi Chen

    (Hong Kong Institute for Monetary and Financial Research, Hong Kong Monetary Authority)

  • Michael Funke

    (Hamburg University, Tallinn University of Technology)

  • Ivan Lozev

    (European Commission)

  • Andrew Tsang

    (Hamburg University)

Abstract

This paper discusses the macroeconomic effects of China's quantity-based banking regulatory tool, "window guidance," introduced in 1998. Using an open-economy DSGE model that includes a commercial banking sector, we study the stabilizing effects of this nonstandard quantitative monetary policy tool and the implications of quantity-based versus price-based monetary policy instruments for welfare. The analyses are relevant to the current overhaul of Chinese monetary policy.

Suggested Citation

  • Hongyi Chen & Michael Funke & Ivan Lozev & Andrew Tsang, 2020. "To Guide or Not to Guide? Quantitative Monetary Policy Tools and Macroeconomic Dynamics in China," International Journal of Central Banking, International Journal of Central Banking, vol. 16(5), pages 49-94, October.
    • Handle: RePEc:ijc:ijcjou:y:2020:q:4:a:2
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    References listed on IDEAS

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    Cited by:

    1. Funke, Michael & Tsang, Andrew, 2020. "The People’s bank of China’s response to the coronavirus pandemic: A quantitative assessment," Economic Modelling, Elsevier, vol. 93(C), pages 465-473.
    2. Michael Funke & Adrian Wende, 2023. "The US–China Phase One trade deal: An economic analysis of the managed trade agreement," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(2), pages 758-786, May.
    3. Jin, Tao & Kwok, Simon & Zheng, Xin, 2022. "Financial wealth, investment, and confidence in a DSGE model for China," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 114-134.
    4. Dekle, Robert & Tsang, Andrew, 2023. "Monetary policy shocks and resource misallocations in the Periphery: Evidence from Chinese provincial bond yields," Journal of International Money and Finance, Elsevier, vol. 137(C).
    5. Michael Funke & Andrew Tsang, 2021. "The Direction and Intensity of China’s Monetary Policy: A Dynamic Factor Modelling Approach," The Economic Record, The Economic Society of Australia, vol. 97(316), pages 100-122, March.
    6. repec:zbw:bofitp:2020_012 is not listed on IDEAS

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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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