State-owned Sector and the Effectiveness of Monetary Policy in China

Zheng Jiang (), Shen Guo and Huimin Shi

Emerging Markets Finance and Trade, 2021, vol. 57, issue 11, 3254-3274

Abstract: Based on a standard two-sector New Keynesian sticky price model, we show that the response of sectoral output share to a monetary policy shock can be used to assess the relative price stickiness between the state-owned and private sectors in China. Specifically, the output share of the sector with more price stickiness increases to a positive monetary shock. A structural VAR analysis on the Chinese industrial data confirms that the price is stickier in the state-owned sector. This result implies that the real effect of monetary policy at the aggregate level in China would diminish along with the potential decline of the state-owned sector.

Date: 2021
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DOI: 10.1080/1540496X.2019.1693360

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