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Dynamic connectedness among monetary policy cycle, financial cycle and business cycle in China

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  • Li, Xiao-Lin
  • Yan, Jing
  • Wei, Xiaohui

Abstract

This study explores the cyclical features and the dynamic spillovers among monetary policy cycle, financial cycles (including credit, housing and stock market cycles) and business cycle in China during 1998–2018. We find that the five cycles exhibit a strong synchronicity in terms of responses to extreme events, and the spillovers among them are bi-directional and time-varying. Stock market cycle replacing business cycle becomes the main risk transmitter after the recent global financial crisis, while monetary policy and credit cycles act as risk receivers over the entire sample. Our findings verify the importance of financial cycle shock in business cycle dynamics and monetary policy formulation.

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  • Li, Xiao-Lin & Yan, Jing & Wei, Xiaohui, 2021. "Dynamic connectedness among monetary policy cycle, financial cycle and business cycle in China," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 640-652.
    • Handle: RePEc:eee:ecanpo:v:69:y:2021:i:c:p:640-652
    DOI: 10.1016/j.eap.2021.01.014
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    5. Shengnan Lv & Zeshui Xu & Xuecheng Fan & Yong Qin & Marinko Skare, 2023. "The mean reversion/persistence of financial cycles: Empirical evidence for 24 countries worldwide," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 18(1), pages 11-47, March.
    6. Long, Shaobo & Zuo, Yulan & Tian, Hao, 2023. "Asymmetries in multi-target monetary policy rule and the role of uncertainty: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 278-296.
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