China's regime-switching monetary policy
Jan Klingelhöfer and
Rongrong Sun ()
Economic Modelling, 2018, vol. 68, issue C, 32-40
Abstract:
To understand Chinese monetary policy, we estimate a forward-looking Taylor-type monetary policy reaction function. The novelty of our paper lies in two aspects. The first is to use a composite overall indicator (the Sun-MP index) to tackle the measurement uncertainty and hence the model selection problem (i.e., a Taylor versus McCallum rule). The second is to capture nonlinearities in the PBC's policy responses with the multiple-regime threshold regression model. We find strong evidence that the PBC's policy reaction function is asymmetric during the post-2000 period and switches across three different regimes. When expecting high inflation, the PBC tightens by adjusting various policy tools; while facing an expected economic slowdown, it eases. However, it is tolerant to low inflation and economic overheating; it barely reacts to them. These findings highlight the importance of allowing for regime switches in modelling the policy response function of a “young” and fast evolving central bank in emerging countries like China.
Keywords: E52; E58; E42; Monetary policy; China; Taylor rule; Regime-switching; Asymmetric; Multiple-regime threshold model (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999317306211
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:ecmode:v:68:y:2018:i:c:p:32-40
DOI: 10.1016/j.econmod.2017.04.017
Access Statistics for this article
Economic Modelling is currently edited by S. Hall and P. Pauly
More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().