Uncertainty, confidence, and monetary policy in China

Donald Lien, Yuchen Sun and Chengsi Zhang

International Review of Economics & Finance, 2021, vol. 76, issue C, 1347-1358

Abstract: This paper examines the role of confidence in Chinese monetary policy under uncertainty. Using a smooth transition vector autoregression (STVAR) model conditional on uncertainty, we find that monetary policy is considerably less effective in high-uncertainty status. We further conduct counterfactual decompositions to isolate the role of confidence in the transmission of monetary policy shocks, and show that the effectiveness of proactive monetary policy is reduced if it fails to inspire entrepreneurs’ confidence. These results are robust to alternative measurements of uncertainty.

Keywords: Uncertainty; Confidence; Monetary policy; STVAR (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:76:y:2021:i:c:p:1347-1358

DOI: 10.1016/j.iref.2019.11.017

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