Is the People's Bank of China consistent in words and deeds?

Jianhao Lin, Ziwei Mei, Liangyuan Chen and Chuanqi Zhu

China Economic Review, 2023, vol. 78, issue C

Abstract: The People's Bank of China (PBC) now frequently uses communication as a policy tool. Whether its words are consistent with its deeds is important for the public to understand the PBC's complex behavior. In this paper, we employ a supervised learning model to construct monetary policy (MP) and economic outlook (EC) communication indices based on the outlook section of quarterly China Monetary Policy Reports (MPRs). We find that the PBC not only adjusts its interventions according to the corresponding economic situation, but also takes into account the information released in the previous outlook section, which indicates its consistency in words and deeds. Using a time-varying parameter model, we further find that the PBC's consistency of words and deeds has made progress over time. The PBC tends to be more consistent in words and deeds under higher uncertainty, and the improvement of such consistency can significantly decrease disagreement about inflation expectations. An additional analysis shows that the full text of MPRs can help predict future monetary policies on a longer time horizon.

Keywords: Monetary policy communication; Supervised learning; Consistency in words and deeds; Disagreement about inflation expectations (search for similar items in EconPapers)
JEL-codes: D78 D82 E52 E58 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1043951X23000044
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:78:y:2023:i:c:s1043951x23000044

DOI: 10.1016/j.chieco.2023.101919

Access Statistics for this article

China Economic Review is currently edited by B.M. Fleisher, K. X. D. Huang, M.E. Lovely, Y. Wen, X. Zhang and X. Zhu

More articles in China Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().