An Investigation of China’s Monetary Policy Shock from a Perspective of Instruments
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| Title | An Investigation of China’s Monetary Policy Shock from a Perspective of Instruments
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| Author | Tian Lei and Chen Langnan |
| Organization | LingnanCollege, Sun Yat-Sen University |
| Email | tl19381@yahoo.com.cn；lnscln@mail.sysu.edu.cn |
| Key Words | Monetary Policy Instruments; SVAR; Bayesian Estimations; Sign Restrictions |
| Abstract | This paper evaluates and compares the effects of a monetary policy shock implemented by one certain tool of the people’s bank of China ,say, open market operation, the required reserve ratio and interest rates, through constructing a mixed identification method that combines the pure sign restrictions method with some zero restrictions in a structural VAR model. We find, (i) a contractionary monetary policy shock exerts a negative effect on real output; a shock induced by raising the required reserve ratio brings the strongest effect, while a shock produced by raising interest rate exerts the weakest effect.(ii) a shock caused by raising interest rate brings price a persistent declining course (iii) a shock caused by raising the required reserve ratio or open market sales accounts for a bigger fraction of the forecast error variance in real output. A shock induced by raising interest rate explains a bigger fraction of the long-horizon forecast error variance in price. Our result implies the Chinese authority should give a priority to the instrument of interest rate when trying to tame inflation in the future. |
| Serial Number | WP234 |
| Time | 2012-02-24 |
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