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Examining monetary policy reaction in the People’s Republic of China -- a Markov switching policy index approach

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  • Paul G. Egan
  • Anthony J. Leddin

Abstract

This paper estimates a monetary policy rule for the People’s Republic of China (PRC) using a standard OLS estimation and a Markov switching model. As the People’s Bank of China (PBOC) generally uses a battery of instruments in the conduct of its monetary policy, these models are estimated using a constructed monetary policy index (MPI) in place of the traditional interest rate. This allows for a better understanding of the role the PBOC has played in the PRC’s unprecedented economic growth and its relatively low inflation over the last twenty years. This paper will not only examine the unique characteristics of Chinese monetary policy but may also give a more general insight into the dynamics of monetary policy reactions in other emerging markets and economies in transition.

Suggested Citation

  • Paul G. Egan & Anthony J. Leddin, 2016. "Examining monetary policy reaction in the People’s Republic of China -- a Markov switching policy index approach," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 14(2), pages 165-191, May.
    • Handle: RePEc:taf:jocebs:v:14:y:2016:i:2:p:165-191
    DOI: 10.1080/14765284.2016.1173464
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    References listed on IDEAS

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    1. Commandeur, Jacques J.F. & Koopman, Siem Jan, 2007. "An Introduction to State Space Time Series Analysis," OUP Catalogue, Oxford University Press, number 9780199228874.
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