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China Monetary Policy Transmission in China: Dual Shocks with Dual Bond Markets

Makram El-Shagi and Lunan Jiang

No 2017/2, CFDS Discussion Paper Series from Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China

Abstract: Although China's monetary and financial system differs drastically from its Western counterpart, empirical studies covering this vast economy (the largest by some accounts) have often been simple reestimations or recalibrations of models that have originally been designed to describe US or European monetary policy. In this paper, we aim to provide an assessment of Chinese monetary policy and in particular monetary policy transmission through the bond market into the real economy, which takes into account the peculiarities of the Chinese market. Namely, our model includes both China's modern attempts at a market based policy shock as well as the "authority" based monetary policy that is a relic of the original banking system; it considers the special nature of the Chinese treasury bond market which is separated in two independent markets with very limited direct arbitrage opportunities between almost identical assets, and finally it incorporates the role of real estate, which played an essential role in China during the last decade.

Keywords: monetary policy; yield curve; market segmentation (search for similar items in EconPapers)
JEL-codes: E52 E43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cna, nep-mac, nep-mon and nep-tra
Date: 2017-12
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Persistent link: https://EconPapers.repec.org/RePEc:fds:dpaper:201702

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