Premium
Contemporary Monetary Policy in C hina: An Empirical Assessment
Author(s) -
Nuutilainen Riikka
Publication year - 2015
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12117
Subject(s) - monetary policy , economics , inflation (cosmology) , monetary economics , inflation targeting , estimation , interest rate , sample (material) , macroeconomics , chemistry , physics , management , chromatography , theoretical physics
This paper focuses on monetary policy in C hina. A set of different specifications for the monetary policy reaction function are empirically evaluated using monthly data for 1998–2014. Overall, the performance of the estimated policy rules is surprisingly good. C hinese monetary policy displays countercyclical reactions to inflation and leaning‐against‐the‐wind behaviour. The paper shows a notable increase in the overall responsiveness of C hinese monetary policy over the course of the estimation period. The central bank interest rate is unresponsive to economic conditions during the earlier years of the sample, but response becomes significant in later years. This finding comports with the view that the monetary policy of the P eople's B ank of C hina has come to place greater weight on price‐based instruments. A time‐varying estimation procedure suggests that the two monetary policy objectives are generally assigned to different instruments. The money supply instrument continues to be utilized to control the price level. Since 2008, the interest rate instrument has been mainly used to achieve the targeted output growth.