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Chinese Monetary Policy and Text Analytics: Connecting Words and Deeds

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Listed:
  • Jeannine Bailliu
  • Xinfen Han
  • Barbara Sadaba
  • Mark Kruger

Abstract

Given China's complex monetary policy framework, the People's Bank of China's (PBOC) monetary policy rule is difficult to infer from its observed behaviour. In this paper, we adopt a novel approach, using text analytics to estimate and interpret the unknown component in the PBOC's reaction function. We extract the unknown component in a McCallum-type monetary policy rule for China through a state-space model framework using a set of summary topics extracted from official PBOC documents. Then, using a set of sectional topics extracted from the same set of PBOC documents, we provide this component with its rightful interpretation. Our results show that this unknown component is related to the Chinese government's agenda of supply-side structural reforms, suggesting that monetary policy is used as a tool to achieve structural reform objectives. Structural vector autoregression (SVAR) results confirm these findings by providing evidence of the importance of the government's supply-side reform objectives for the conduct of monetary policy.

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  • Jeannine Bailliu & Xinfen Han & Barbara Sadaba & Mark Kruger, 2021. "Chinese Monetary Policy and Text Analytics: Connecting Words and Deeds," Staff Working Papers 21-3, Bank of Canada.
    • Handle: RePEc:bca:bocawp:21-3
    DOI: 10.34989/swp-2021-3
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    References listed on IDEAS

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    1. Sun, Rongrong, 2013. "Does monetary policy matter in China? A narrative approach," China Economic Review, Elsevier, vol. 26(C), pages 56-74.
    2. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    3. Alicia Garcia-Herrero & Eric Girardin, 2013. "China's Monetary Policy Communication: Money Markets not only Listen, They also Understand," Working Papers 022013, Hong Kong Institute for Monetary Research.
    4. Dong He & Laurent L. Pauwels, 2008. "What Prompts the People's Bank of China to Change Its Monetary Policy Stance? Evidence from a Discrete Choice Model," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 16(6), pages 1-21, November.
    5. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    6. repec:pri:cepsud:161blinder is not listed on IDEAS
    7. Xiong, Weibo, 2012. "Measuring the monetary policy stance of the People's bank of china: An ordered probit analysis," China Economic Review, Elsevier, vol. 23(3), pages 512-533.
    8. Eric Girardin & Sandrine Lunven & Guonan Ma, 2017. "China's evolving monetary policy rule: from inflation-accommodating to anti-inflation policy," BIS Working Papers 641, Bank for International Settlements.
    9. Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
    10. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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    Cited by:

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    2. Ca' Zorzi, Michele & Manu, Ana-Simona & Lopardo, Gianluigi, 2025. "Verba volant, transcripta manent: what corporate earnings calls reveal about the AI stock rally," Working Paper Series 3093, European Central Bank.
    3. Donato Masciandaro & Davide Romelli & Gaia Rubera, 2021. "Monetary policy, Twitter and financial markets: evidence from social media traffic," BAFFI CAREFIN Working Papers 21160, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    4. Donato Masciandaro & Davide Romelli & Gaia Rubera, 2021. "Monetary policy and financial markets: evidence from Twitter traffic," BAFFI CAREFIN Working Papers 21160, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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