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The direction and intensity of China’s monetary policy conduct: A dynamic factor modelling approach

Michael Funke and Andrew Tsang ()

No 8/2019, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: The recent upgrade of the People’s Bank of China’s monetary policy framework establishes a corridor system of interest rates. As the revamped policy arrangement now features a multiple-instrument mix of liquidity tools and pricing signals, we employ a dynamic factor modelling approach to derive an indicator of China’s monetary policy stance. The approach is based on the notion that comovements in several monetary policy instruments have a common element that can be captured by a single underlying, unobserved component. To clarify and interpret the derived index, we employ a baseline DSGE model that can be solved analytically and allows tracing of the expansionary and contractionary on-and-off phases of Chinese monetary policy.

JEL-codes: C54 E52 E58 E61 E32 (search for similar items in EconPapers)
Date: 2019-04-24
New Economics Papers: this item is included in nep-cba, nep-cna, nep-dge, nep-mac, nep-mon and nep-tra
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Published in Published in Economic Record, Vol. 97, No. 316, March, 2021, 100–122

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