What Measures Chinese Monetary Policy?

Rongrong Sun ()

No 72015, Working Papers from Hong Kong Institute for Monetary Research

Abstract: This paper models the PBC's operating procedures in a two-stage vector autoregression framework. We decompose changes in policy variables into exogenous and endogenous components in order to find a "clean" monetary policy indicator whose changes are mainly policy induced. Our main findings are twofold. First, the PBC¡¦s procedures appear to have changed over time. Second, its operating procedures are neither pure interest rate targeting nor pure reserves targeting, but a mixture of the two. There are a variety of indicators that appear to contain information about the monetary policy stance. It is therefore preferable to use a composite measure to gauge the stance of Chinese monetary policy. We construct a new composite indicator of the overall policy stance, consistent with our model. A comparison with existing indicators suggests that the composite indices, rather than individual indicators, perform better in measuring the stance of Chinese monetary policy.

Keywords: Monetary Policy; VAR; Operating Procedures; Exogenous (Endogenous) Components (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-03
New Economics Papers: this item is included in nep-cba, nep-cna, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Related works:
Journal Article: What measures Chinese monetary policy? (2015)
Working Paper: What Measures Chinese Monetary Policy? (2014)
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