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A Narrative Indicator of Monetary Conditions in China

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  • Sun, Rongrong

Abstract

In this paper, we apply the narrative approach, studying the PBC's historical records, to infer policy-makers' intentions and thereby build a time series of monetary policy indicator. We show that our narrative policy indicator is informative about economic activity. Changes in it reflect the PBC's responses to its perceptions of economic conditions. It is a good indicator of monetary policy actions. Finally, we show that compared to monetary aggregates, changes in interest rates and the required reserve ratio are more associated with changes in monetary policy, as measured by our narrative indicator, but only to a limited degree. None of them alone can be a good proxy of policy indicator.

Suggested Citation

  • Sun, Rongrong, 2015. "A Narrative Indicator of Monetary Conditions in China," MPRA Paper 64166, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:64166
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    References listed on IDEAS

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    1. Sun, Rongrong, 2013. "Does monetary policy matter in China? A narrative approach," China Economic Review, Elsevier, vol. 26(C), pages 56-74.
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    17. Sun, Rongrong, 2015. "What measures Chinese monetary policy?," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 263-286.
    18. Hongyi Chen & Qianying Chen & Stefan Gerlach, 2011. "The Implementation of Monetary Policy in China: The Interbank Market and Bank Lending," Working Papers 262011, Hong Kong Institute for Monetary Research.
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    More about this item

    Keywords

    the narrative-based policy indicator; quantitative policy measures; VAR; predictive power;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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