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The Effectiveness of Chinas Monetary Policy: Based on the Mixed-Frequency Data

Deqing Wang, Yinqiu Song, Hongyan Zhang and Shengjie Pan
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Deqing Wang: School of Economics and Management, University of Chinese Academy of Sciences, Beijing, China.
Yinqiu Song: School of Economics and Management, University of Chinese Academy of Sciences, Beijing, China.
Hongyan Zhang: School of Economics and Management, University of Chinese Academy of Sciences, Beijing, China.
Shengjie Pan: School of Economics and Management, University of Chinese Academy of Sciences, Beijing, China.

Asian Economic and Financial Review, 2020, vol. 10, issue 3, 325-339

Abstract: After the period of rapid growth, the Chinese economy has entered the ?new normal? stage. This is a sign of the expected slowdown in economic growth. In the course of development, has the effectiveness of China?s monetary policy changed? Which of quantity and price rule monetary policies is more suitable for China?s economy? Very few researches focus on these questions, and this paper constructed a novel Mixed-Frequency Bayesian Factor Augmented Vector AutoRegression (MF-BFAVAR for short) model by combining the dynamic factor model, mixed-frequency spirit, Bayesian estimation, and factor augmented vector autoregression to find the answer. And we applied three different frequencies of data, in order to get the best estimated results. The conclusion is that price rule monetary policy is suitable for the period of steady development, and when economic growth suffers fluctuations, quantity rule monetary policy has better performance. Therefore, monetary policymakers should formulate the most effective policy based on different situations.

Keywords: Monetary policy; China; Effectiveness; New normal; Mixed-frequency; FAVAR; Bayesian. (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Date: 2020
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