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Chinese Monetary Policy and Text Analytics: Connecting Words and Deeds

Jeannine Bailliu (), Xinfen Han (), Barbara Sadaba () and Mark Kruger ()

Staff Working Papers from Bank of Canada

Abstract: Given China's complex monetary policy framework, the People's Bank of China's (PBOC) monetary policy rule is difficult to infer from its observed behaviour. In this paper, we adopt a novel approach, using text analytics to estimate and interpret the unknown component in the PBOC's reaction function. We extract the unknown component in a McCallum-type monetary policy rule for China through a state-space model framework using a set of summary topics extracted from official PBOC documents. Then, using a set of sectional topics extracted from the same set of PBOC documents, we provide this component with its rightful interpretation. Our results show that this unknown component is related to the Chinese government's agenda of supply-side structural reforms, suggesting that monetary policy is used as a tool to achieve structural reform objectives. Structural vector autoregression (SVAR) results confirm these findings by providing evidence of the importance of the government's supply-side reform objectives for the conduct of monetary policy.

Keywords: Econometric and statistical methods; International topics; Monetary policy communications; Monetary policy framework (search for similar items in EconPapers)
JEL-codes: C63 E58 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2021-01
New Economics Papers: this item is included in nep-cba, nep-cna, nep-mac and nep-mon
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