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Uncertainty shocks and monetary policy: evidence from the troika of China's economy

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  • Chenpei Hu
  • Zuiyi Shen
  • Haijing Yu
  • Bing Xu

Abstract

Growth in China’s economy is driven by the troika: consumption, investment and export. This paper examines the effect of uncertain events such as the global financial crisis in 2008, and the COVID-19 pandemic on the troika. Based on the construction of a new uncertainty index of China’s economy, the relationship between uncertainty and growth in the troika is examined by using a TVP-VAR model. Results show that fluctuations in the uncertainty index during the COVID-19 epidemic had the greatest negative impact on consumption and investment at a magnitude of −0.27, notably greater than that during the period of the global financial crisis. The negative impact on export reached −0.73, smaller than that during the global financial crisis. Against a backdrop of the novel coronavirus epidemic, it is also found that expansionary monetary policies can have a relatively large impact on investment and export, reaching 1.75 and 1.57 respectively, while short-term impact on consumption is relatively weak, averaging at 0.51.

Suggested Citation

  • Chenpei Hu & Zuiyi Shen & Haijing Yu & Bing Xu, 2022. "Uncertainty shocks and monetary policy: evidence from the troika of China's economy," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 35(1), pages 971-985, December.
    • Handle: RePEc:taf:reroxx:v:35:y:2022:i:1:p:971-985
    DOI: 10.1080/1331677X.2021.1952088
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    Cited by:

    1. Changzheng Gao & Xiuna Wang & Dongwei Li & Chao Han & Weiyang You & Yihang Zhao, 2023. "A Novel Hybrid Power-Grid Investment Optimization Model with Collaborative Consideration of Risk and Benefit," Energies, MDPI, vol. 16(20), pages 1-23, October.

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