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Nine blind men and the PBoC

Author

Listed:
  • Makram El-Shagi

    (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)

  • Yishuo Ma

    (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)

Abstract

Over the past decade, several dozen papers have been written that identify the People’s Bank of China’s monetary policy shocks. Yet, what often seems like minor differences in measurements of monetary policy and identifying assumptions yield vastly different implied shocks. In this paper, we pitch 20 shock time series from the literature against each other in a horse race. We use a local projections framework to produce impulse responses based on all shocks for production, prices, money and interest rates and use them to assess the economic plausibility of the competing results. Our results confirm the frequently mentioned relevance of monetary aggregates for Chinese monetary policy but also point the importance of using forward looking policy reaction functions (or account for forward looking variables in a VAR framework) when identifying monetary policy shocks.

Suggested Citation

  • Makram El-Shagi & Yishuo Ma, 2021. "Nine blind men and the PBoC," CFDS Discussion Paper Series 2021/2, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
  • Handle: RePEc:fds:dpaper:202102
    as

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    File URL: http://cfds.henuecon.education/images/dpaper/WP_2_2021_blindmen-pboc.pdf
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    References listed on IDEAS

    as
    1. Sun, Rongrong, 2013. "Does monetary policy matter in China? A narrative approach," China Economic Review, Elsevier, vol. 26(C), pages 56-74.
    2. Uhlig, Harald, 2005. "What are the effects of monetary policy on output? Results from an agnostic identification procedure," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 381-419, March.
    3. Òscar Jordà, 2009. "Simultaneous Confidence Regions for Impulse Responses," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 629-647, August.
    4. Zhang, Chengsi & Sun, Yuchen, 2017. "Confidence in Chinese monetary policy," International Review of Economics & Finance, Elsevier, vol. 52(C), pages 212-221.
    5. Kaiji Chen & Jue Ren & Tao Zha, 2018. "The Nexus of Monetary Policy and Shadow Banking in China," American Economic Review, American Economic Association, vol. 108(12), pages 3891-3936, December.
    6. Michael Funke & Andrew Tsang, 2021. "The Direction and Intensity of China’s Monetary Policy: A Dynamic Factor Modelling Approach," The Economic Record, The Economic Society of Australia, vol. 97(316), pages 100-122, March.
    7. Klingelhöfer, Jan & Sun, Rongrong, 2019. "Macroprudential policy, central banks and financial stability: Evidence from China," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 19-41.
    8. Chen, Hongyi & Tillmann, Peter, 2021. "Monetary policy uncertainty in China," Journal of International Money and Finance, Elsevier, vol. 110(C).
    9. He, Dong & Wang, Honglin, 2012. "Dual-track interest rates and the conduct of monetary policy in China," China Economic Review, Elsevier, vol. 23(4), pages 928-947.
    10. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
    11. Sun, Rongrong, 2015. "What measures Chinese monetary policy?," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 263-286.
    12. Regis Barnichon & Christian Brownlees, 2019. "Impulse Response Estimation by Smooth Local Projections," The Review of Economics and Statistics, MIT Press, vol. 101(3), pages 522-530, July.
    13. Makram El-Shagi, 2019. "A simple estimator for smooth local projections," Applied Economics Letters, Taylor & Francis Journals, vol. 26(10), pages 830-834, June.
    14. Rongrong Sun, 2018. "A Narrative indicator of Monetary Conditions in China," International Journal of Central Banking, International Journal of Central Banking, vol. 14(4), pages 1-42, September.
    15. He, Qing & Leung, Pak-Ho & Chong, Terence Tai-Leung, 2013. "Factor-augmented VAR analysis of the monetary policy in China," China Economic Review, Elsevier, vol. 25(C), pages 88-104.
    16. Fu, Buben & Wang, Bin, 2020. "The transition of China's monetary policy regime: Before and after the four trillion RMB stimulus," Economic Modelling, Elsevier, vol. 89(C), pages 273-303.
    17. Makram El-Shagi & Lunan Jiang, 2017. "China Monetary Policy Transmission in China: Dual Shocks with Dual Bond Markets," CFDS Discussion Paper Series 2017/2, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
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    Cited by:

    1. Lu, Dong & Tang, Huoqing & Zhang, Chengsi, 2023. "China's monetary policy surprises and corporate real investment," China Economic Review, Elsevier, vol. 77(C).

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    More about this item

    Keywords

    China; monetary policy shocks; local projections; meta study;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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