IDEAS home Printed from https://ideas.repec.org/p/zbw/bofitp/bdp2015_010.html
   My bibliography  Save this paper

Contemporary monetary policy in China: A move towards price-based policy?

Author

Listed:
  • Nuutilainen, Riikka

Abstract

​This paper focuses on monetary policy in China. A set of different specifications for the monetary policy reaction function are empirically evaluated using monthly data for 1999––2012. Variation is allowed both in the policy targets as well as in the monetary policy instrument itself. Overall, the performance of the estimated policy rules is surprisingly good. Chinese monetary policy displays countercyclical reactions to in‡ation and leaning-against-the-wind behaviour. The paper shows that there is a notable increase in the overall responsiveness of Chinese monetary policy over the course of the estimation period. The central bank interest rate is irresponsive to economic conditions during the earlier years of the sample but does respond in the later years. This finding supports the view that the monetary policy settings of the People's Bank of China have come to place more weight on price-based instruments. A time-varying estimation procedure suggests that the two monetary policy objectives are assigned to different instruments. The money supply instrument is utilised to control the price level and (after 2008) the interest rate instrument has been used to achieve the targeted output growth.

Suggested Citation

  • Nuutilainen, Riikka, 2015. "Contemporary monetary policy in China: A move towards price-based policy?," BOFIT Discussion Papers 10/2015, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:bdp2015_010
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/212820/1/bofit-dp2015-010.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Burdekin, Richard C.K. & Siklos, Pierre L., 2008. "What has driven Chinese monetary policy since 1990? Investigating the People's bank's policy rule," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 847-859, September.
    2. Orphanides, Athanasios & Williams, John C., 2007. "Robust monetary policy with imperfect knowledge," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1406-1435, July.
    3. Muneesh Kapur & Michael Debabrata Patra, 2012. "Alternative Monetary Policy Rules for India," IMF Working Papers 2012/118, International Monetary Fund.
    4. Robert E. Hall & N. Gregory Mankiw, 1994. "Nominal Income Targeting," NBER Chapters, in: Monetary Policy, pages 71-94, National Bureau of Economic Research, Inc.
    5. Mehrotra, Aaron & Sánchez-Fung, José R., 2011. "Assessing McCallum and Taylor rules in a cross-section of emerging market economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(2), pages 207-228, April.
    6. repec:ucp:bknber:9780226791258 is not listed on IDEAS
    7. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-1286, September.
    8. Tuuli Koivu & Aaron Mehrotra & Riikka Nuutilainen, 2009. "An analysis of Chinese money and prices using a McCallum-type rule," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 7(2), pages 219-235.
    9. 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.
    10. Bennett T. McCallum, 2003. "Japanese monetary policy, 1991-2001," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 89(Win), pages 1-31.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Makram El-Shagi & Kiril Tochkov, 2024. "Regional Effects of Monetary Policy in China," CFDS Discussion Paper Series 2024/1, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Riikka Nuutilainen, 2015. "Contemporary Monetary Policy in China: An Empirical Assessment," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 461-486, August.
    2. repec:zbw:bofitp:2015_010 is not listed on IDEAS
    3. repec:zbw:bofitp:urn:nbn:fi:bof-201503181119 is not listed on IDEAS
    4. repec:bof:bofitp:urn:nbn:fi:bof-201503181119 is not listed on IDEAS
    5. Nuutilainen, Riikka, 2015. "Contemporary monetary policy in China: A move towards price-based policy?," BOFIT Discussion Papers 10/2015, Bank of Finland, Institute for Economies in Transition.
    6. Iikka Korhonen & Riikka Nuutilainen, 2016. "A monetary policy rule for Russia, or is it rules?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 28-45.
    7. M. Marzo, 2001. "Evaluating Monetary Policy Regimes: the Role of Nominal Rigidities," Working Papers 411, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    9. Tetlow, Robert J. & von zur Muehlen, Peter, 2001. "Simplicity versus optimality: The choice of monetary policy rules when agents must learn," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 245-279, January.
    10. Iikka Korhonen & Riikka Nuutilainen, 2016. "A monetary policy rule for Russia, or is it rules?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 28-45.
    11. Korhonen, Iikka & Nuutilainen, Riikka, 2017. "Breaking monetary policy rules in Russia," Russian Journal of Economics, Elsevier, vol. 3(4), pages 366-378.
    12. Hutchison, Michael M. & Sengupta, Rajeswari & Singh, Nirvikar, 2013. "Dove or Hawk? Characterizing monetary policy regime switches in India," Emerging Markets Review, Elsevier, vol. 16(C), pages 183-202.
    13. repec:zbw:bofitp:2016_002 is not listed on IDEAS
    14. Klingelhöfer, Jan & Sun, Rongrong, 2018. "China's regime-switching monetary policy," Economic Modelling, Elsevier, vol. 68(C), pages 32-40.
    15. Fredj Jawadi & Sushanta K. Mallick & Ricardo M. Sousa, 2011. "Monetary Policy Rules in the BRICS: How Important is Nonlinearity?," NIPE Working Papers 18/2011, NIPE - Universidade do Minho.
    16. Orphanides, Athanasios & Williams, John C., 2008. "Learning, expectations formation, and the pitfalls of optimal control monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages 80-96, October.
    17. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
    18. Fair, Ray C. & Howrey, E. Philip, 1996. "Evaluating alternative monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 173-193, October.
    19. repec:zbw:bofitp:2008_015 is not listed on IDEAS
    20. de Truchis, Gilles & Dell’Eva, Cyril & Keddad, Benjamin, 2017. "On exchange rate comovements: New evidence from a Taylor rule fundamentals model with adaptive learning," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 82-98.
    21. Pankaj Kumar & Naveen Srinivasan, 2014. "Unravelling India’s Inflation Puzzle," Working Papers 2014-085, Madras School of Economics,Chennai,India.
    22. Weymark, Diana N., 2004. "Economic structure, policy objectives, and optimal interest rate policy at low inflation rates," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 25-51, March.
    23. repec:zbw:bofrdp:2007_032 is not listed on IDEAS
    24. Robert G. King, 2000. "The new IS-LM model : language, logic, and limits," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 45-103.
    25. William T. Gavin & Benjamin D. Keen & Alexander W. Richter & Nathaniel A. Throckmorton, 2013. "Global Dynamics at the Zero Lower Bound," Auburn Economics Working Paper Series auwp2013-17, Department of Economics, Auburn University.
    26. Drew, Aaron & Hunt, Benjamin, 2000. "Efficient simple policy rules and the implications of potential output uncertainty," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 143-160.

    More about this item

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bofitp:bdp2015_010. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/bofitfi.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.