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What Measures Chinese Monetary Policy?

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  • Rongrong Sun

    (University of Nottingham Ningbo China and Hong Kong Institute for Monetary Research)

Abstract

This paper models the PBC's operating procedures in a two-stage vector autoregression framework. We decompose changes in policy variables into exogenous and endogenous components in order to find a "clean" monetary policy indicator whose changes are mainly policy induced. Our main findings are twofold. First, the PBC¡¦s procedures appear to have changed over time. Second, its operating procedures are neither pure interest rate targeting nor pure reserves targeting, but a mixture of the two. There are a variety of indicators that appear to contain information about the monetary policy stance. It is therefore preferable to use a composite measure to gauge the stance of Chinese monetary policy. We construct a new composite indicator of the overall policy stance, consistent with our model. A comparison with existing indicators suggests that the composite indices, rather than individual indicators, perform better in measuring the stance of Chinese monetary policy.

Suggested Citation

  • Rongrong Sun, 2015. "What Measures Chinese Monetary Policy?," Working Papers 072015, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:072015
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    References listed on IDEAS

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    Cited by:

    1. Güneş Kamber & Madhusudan Mohanty, 2018. "Do interest rates play a major role in monetary policy transmission in China?," BIS Working Papers 714, Bank for International Settlements.
    2. 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.
    3. Sun, Rongrong, 2014. "Review over Empirical Evidence on Real Effects of Monetary Policy," MPRA Paper 58513, University Library of Munich, Germany.
    4. Chen, Hongyi & Chow, Kenneth & Tillmann, Peter, 2017. "The effectiveness of monetary policy in China: Evidence from a Qual VAR," China Economic Review, Elsevier, vol. 43(C), pages 216-231.
    5. Sun, Rongrong, 2018. "Monetary Policy Announcements and Market Interest Rates’ Response: Evidence from China," MPRA Paper 87703, University Library of Munich, Germany.
    6. Klingelhöfer, Jan & Sun, Rongrong, 2017. "Macroprudential Policy, Central Banks and Financial Stability: Evidence from China," MPRA Paper 79033, University Library of Munich, Germany.
    7. repec:eee:ecmode:v:68:y:2018:i:c:p:32-40 is not listed on IDEAS
    8. Sun, Rongrong, 2018. "Requiem for the Interest-Rate Controls in China," MPRA Paper 87700, University Library of Munich, Germany.
    9. Sun, Rongrong, 2015. "A Narrative Indicator of Monetary Conditions in China," MPRA Paper 64166, University Library of Munich, Germany.

    More about this item

    Keywords

    Monetary Policy; VAR; Operating Procedures; Exogenous (Endogenous) Components;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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