Financial Crisis, Monetary Policy, and Stock Market Volatility in China

Cheng-si Zhang, Da-yin Zhang and Jeffery Breece
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Cheng-si Zhang: School of Finance, China Financial Research Center, Renmin University of China
Da-yin Zhang: School of Finance, Renmin University of China
Jeffery Breece: Colby College, USA

Annals of Economics and Finance, 2011, vol. 12, issue 2, 371-388

Abstract: This paper employs the Markov regime switching GARCH model to capture the nature of China's stock market volatility in 2003-2009. We find a significant regime shift in the volatility of the stock market when the People's Bank of China adopted an accommodative monetary policy in response to the global financial crisis of 2007-2008. After the structural change, China's stock market moved into a regime with increased volatility, which appears to be persisting into the near future. This finding suggests that the central bank of China should incorporate stock market volatility into its policy-making process.

Keywords: GARCH; Stock market; Monetary policy; Regime switching (search for similar items in EconPapers)
JEL-codes: E5 E58 G1 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2011:v:12:i:2:p:371-388

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