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From a Quantity to an Interest Rate‐Based Framework: Multiple Monetary Policy Instruments and Their Effects in China

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  • Soyoung Kim
  • Hongyi Chen

Abstract

This paper investigates the effects of various monetary policy instruments in China with the structural vector autoregression model. Empirical results are as follows. The effects of benchmark lending rate and short‐term interest rate shocks are larger than those of reserve requirement ratio shocks. Nonpolicy shocks exert substantial effects on intermediate targets under a quantity‐based policy framework. The size and effects of short‐term interest rate shocks in recent years are large. Short‐term interest rate shocks have strong effects on property prices. These results suggest that the new interest rate‐based policy framework is more effective than the previous quantity‐based policy framework.

Suggested Citation

  • Soyoung Kim & Hongyi Chen, 2022. "From a Quantity to an Interest Rate‐Based Framework: Multiple Monetary Policy Instruments and Their Effects in China," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(7), pages 2103-2123, October.
    • Handle: RePEc:wly:jmoncb:v:54:y:2022:i:7:p:2103-2123
    DOI: 10.1111/jmcb.12900
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    7. Sun, Weihong & Liu, Ding, 2023. "Great moderation with Chinese characteristics: Uncovering the role of monetary policy," Economic Modelling, Elsevier, vol. 121(C).
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    9. Fu, Liang & Ho, Chun-Yu, 2022. "Monetary policy surprises and interest rates under China's evolving monetary policy framework," Emerging Markets Review, Elsevier, vol. 52(C).
    10. Jiang, Lunan & Chen, Yinghui & Zhang, Lin, 2024. "Monetary policy shocks and firm investment decisions: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 95(PB).

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