Public Confidence and the nonlinear Effects of Monetary Policy
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| Title | Public Confidence and the nonlinear Effects of Monetary Policy
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| Author | Su Zhifang, Hu Ridong and Wang Haicheng |
| Organization | Institute of Economics, CASS;Huaqiao University of Economics and Finance;Graduate school,CASS |
| Email | suzufine@hqu.edu.cn；j_rdhu@hqu.edu.cn；mirrlees@163.com |
| Key Words | Effect of Monetary Policy; Confidence; Dynamic Factor Model; Smooth Transition Model |
| Abstract | The global financial crisis of 2008 promoted academics and policy makers to rethink the effects of monetary policy under confidence crisis and credit crisis. Based on China's consumer confidence index and entrepreneur confidence index, this paper employs the Dynamic Factor Model technique to compose public confidence index, then use logistic smooth transfer vector autoregression model to study whether the effect of monetary policy varies for different public confidence state, and finds that: (1) Under high public confidence state, the positive monetary shocks have weaker effects on output and inflation than negative shocks, and when the public confidence decreases, the positive monetary shocks have stronger effects on output and inflation than negative shocks.(2) For the monetary shock of same direction, the effect on out much is weaker, and the effect on inflation is stronger compared with the high public confidence state.(3)Under high confidence state, small size shocks have stronger effects on output and inflation than big size. The conversion of public confidence has become a key factor influences the effect of monetary policy in special period of economy, therefore the consumer confidence and entrepreneur confidence index may be regarded as important reference variables to improve the effect of monetary policy when the central bank apply prudential macroeconomic policy framework. |
| Serial Number | WP439 |
| Time | 2013-04-26 |
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