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Monetary Policy in China: The Role of the Qualitative Instruments

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  • Marjan Petreski
  • Branimir Jovanovic

Abstract

The objective of this paper is to shed some light on the role of the qualitative instruments for monetary policy conduct in China. The unobservable qualitative instruments are calculated by Kalman filtering and then are used in a Taylor rule regression, to estimate if and how they react to inflation and the output gap. The results are compared to the estimates of a classic Taylor rule, with the base interest rate as the monetary policy instrument. Results suggest that qualitative instruments react to the business cycle, but not to inflation, while base interest rate reacts both to inflation and output. As Chinese monetary policy relies more on the qualitative than on the quantitative instruments, People’s Bank of China seems to promote growth primarily through stabilizing output, not inflation. Copyright CEEUN 2013

Suggested Citation

  • Marjan Petreski & Branimir Jovanovic, 2013. "Monetary Policy in China: The Role of the Qualitative Instruments," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 20(3), pages 437-442, November.
    • Handle: RePEc:spr:trstrv:v:20:y:2013:i:3:p:437-442
    DOI: 10.1007/s11300-013-0285-3
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    References listed on IDEAS

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    1. Richard Podpiera, 2006. "Progress in China’s Banking Sector Reform: Has Bank Behavior Changed?," IMF Working Papers 2006/071, International Monetary Fund.
    2. Aaron Mehrotra & José R Sánchez-Fung, 2010. "China's Monetary Policy and the Exchange Rate," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 52(4), pages 497-514, December.
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    4. Marvin Goodfriend & Eswar Prasad, 2009. "A Framework for Independent Monetary Policy in China," Chapters, in: Gill Hammond & Ravi Kanbur & Eswar Prasad (ed.), Monetary Policy Frameworks for Emerging Markets, chapter 8, Edward Elgar Publishing.
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    Cited by:

    1. Bogdan CAPRARU & Norel Ionut MOISE & Andrei RADULESCU, 2015. "The Monetary Policy Of The National Bank Of Romania In The Inflation Targeting Era. A Taylor Rule Approach," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 16, pages 91-102, December.
    2. Paul G. Egan & Anthony J. Leddin, 2016. "Examining Monetary Policy Transmission in the People's Republic of China–Structural Change Models with a Monetary Policy Index," Asian Development Review, MIT Press, vol. 33(1), pages 74-110, March.

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    More about this item

    Keywords

    China; Monetary policy; Qualitative instruments; Kalman filter; Taylor rule; E12; E43; E52;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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