Hawk or dove: Switching regression model for the monetary policy reaction function in China

Chung-Hua Shen, Kun-Li Lin and Na Guo

Pacific-Basin Finance Journal, 2016, vol. 36, issue C, 94-111

Abstract: This paper investigates the monetary policy reaction function in China. We propose two hypotheses, namely, the “hawk regime” and the “dove regime” hypotheses. The former suggests that the central bank is more concerned about the inflation rate than the output, whereas the latter suggests otherwise. We examine these hypotheses using the endogenous switching model of Hu and Schiantarelli (1998), which allows the creation of a threshold index that divides the sample into two high and low price regimes on the basis of the inflation and asset price growth rates. The People's Bank of China places a low value on output and a high coefficient on inflation in a “high-price regime” and vice versa in a “low-price scheme,” which are consistent with the hawk and dove regime hypotheses, respectively.

Keywords: Asymmetry; Endogenous switching model; Hawk; Monetary policy reaction function (search for similar items in EconPapers)
JEL-codes: C30 E52 E58 O53 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:36:y:2016:i:c:p:94-111

DOI: 10.1016/j.pacfin.2015.11.005

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