Uncertainty shocks and monetary policy: evidence from the troika of China's economy

Chenpei Hu, Zuiyi Shen, Haijing Yu and Bing Xu

Economic Research-Ekonomska Istraživanja, 2022, vol. 35, issue 1, 971-985

Abstract: Growth in China’s economy is driven by the troika: consumption, investment and export. This paper examines the effect of uncertain events such as the global financial crisis in 2008, and the COVID-19 pandemic on the troika. Based on the construction of a new uncertainty index of China’s economy, the relationship between uncertainty and growth in the troika is examined by using a TVP-VAR model. Results show that fluctuations in the uncertainty index during the COVID-19 epidemic had the greatest negative impact on consumption and investment at a magnitude of −0.27, notably greater than that during the period of the global financial crisis. The negative impact on export reached −0.73, smaller than that during the global financial crisis. Against a backdrop of the novel coronavirus epidemic, it is also found that expansionary monetary policies can have a relatively large impact on investment and export, reaching 1.75 and 1.57 respectively, while short-term impact on consumption is relatively weak, averaging at 0.51.

Date: 2022
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DOI: 10.1080/1331677X.2021.1952088

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