Open AccessComparison of Monetary Policy Actions and Central Bank Communication on Tackling Asset Price Bubbles—Evidence from China’s Stock Market
Author(s) -
Sun Ou,
Zhixin Liu
Publication year - 2016
Publication title -
plos one
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.99
H-Index - 332
ISSN - 1932-6203
DOI - 10.1371/journal.pone.0166526
Subject(s) - monetary policy , monetary economics , stock (firearms) , economics , central bank , stock market , china , forward guidance , asset (computer security) , economic bubble , stock market bubble , financial market , financial economics , inflation targeting , finance , biology , credit channel , mechanical engineering , paleontology , computer security , horse , political science , law , computer science , engineering
We examine the different effects of monetary policy actions and central bank communication on China’s stock market bubbles with a Time-varying Parameter SVAR model. We find that with negative responses of fundamental component and positive responses of bubble component of asset prices, contractionary monetary policy induces the observed stock prices to rise during periods of large bubbles. By contrast, central bank communication acts on the market through expectation guidance and has more significant effects on stock prices in the long run, which implies that central bank communication be used as an effective long-term instrument for the central bank’s policymaking.