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Does Monetary Policy Matter in China? A Narrative Approach

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  • Sun, Rongrong

Abstract

This paper applies the narrative approach to monetary policy in China to tackle two problems of policy measurement. The first problem arises because the PBC (the central bank of China) applies multiple instruments and none of them per se can adequately reflect changes in its monetary policy. The second one is the classical identification problem: the causation direction of the observed interaction between central bank actions and real activity needs to be identified. The PBC’s documents are used to infer the intentions behind policy movements. Three shocks are identified for the period 2000-2011 that are exogenous to real output. Estimates using these shocks and various robustness tests indicate that monetary policy has large and persistent impact on output in China.

Suggested Citation

  • Sun, Rongrong, 2012. "Does Monetary Policy Matter in China? A Narrative Approach," MPRA Paper 45023, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:45023
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    More about this item

    Keywords

    exogenous shocks; the narrative approach; real effects of monetary policy;
    All these keywords.

    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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