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China Monetary Policy Transmission in China: Dual Shocks with Dual Bond Markets

Author

Listed:
  • Makram El-Shagi
  • Lunan Jiang

    (Center for Financial Development and Stability at Henan University, Kaifeng, Henan)

Abstract

Although China's monetary and financial system differs drastically from its Western counterpart, empirical studies covering this vast economy (the largest by some accounts) have often been simple reestimations or recalibrations of models that have originally been designed to describe US or European monetary policy. In this paper, we aim to provide an assessment of Chinese monetary policy and in particular monetary policy transmission through the bond market into the real economy, which takes into account the peculiarities of the Chinese market. Namely, our model includes both China's modern attempts at a market based policy shock as well as the "authority" based monetary policy that is a relic of the original banking system; it considers the special nature of the Chinese treasury bond market which is separated in two independent markets with very limited direct arbitrage opportunities between almost identical assets, and finally it incorporates the role of real estate, which played an essential role in China during the last decade.

Suggested Citation

  • Makram El-Shagi & Lunan Jiang, 2017. "China Monetary Policy Transmission in China: Dual Shocks with Dual Bond Markets," CFDS Discussion Paper Series 2017/2, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
  • Handle: RePEc:fds:dpaper:201702
    as

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    File URL: http://cfds.henuecon.education/images/dpaper/WP_2_2017.pdf
    File Function: First version, 2017
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    References listed on IDEAS

    as
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    Cited by:

    1. Sun, Rongrong, 2018. "Monetary Policy Announcements and Market Interest Rates’ Response: Evidence from China," MPRA Paper 87703, University Library of Munich, Germany.
    2. Sun, Rongrong, 2018. "Requiem for the Interest-Rate Controls in China," MPRA Paper 87700, University Library of Munich, Germany.

    More about this item

    Keywords

    monetary policy; yield curve; market segmentation;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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