Does Monetary Policy Moderate or Exacerbate the Economic Fluctuations and Stock Market Volatility in China?
Read
DownLoad |
| Title | Does Monetary Policy Moderate or Exacerbate the Economic Fluctuations and Stock Market Volatility in China?
|
| Author | Tu Wei , Liu Hongkui, Zhou Guofu and Zou Hengfu |
| Organization | CEMA, Central University of Finance and Economics；Olin Business School, Washington University in St.Louis |
| Email | mtuwei@126.com；lhyhnly@126.com；zhou@wustl.eduHzoucema@gmail.com |
| Key Words | Credit cycle; Business Cycle; Stock Return; Bayesian Method |
| Abstract | Based on a SVAR model, which integrates monetary policy behavior with the banking system, demand for money aggregate, and the real economy, the paper reexamines the relationship between the credit cycle and the business cycle in China. Different from the existing research, we distinguish between the ‘required reserve rate’ and the ‘open market operation’, and identify the impacts of the two policy instruments simultaneously. The empirical results show that the PBC’s responsibility for controlling inflation and stabilizing the aggregate demand is mainly represented by the adjustment of the required reserve rate, and the ‘open market operation’ accounts for the monetary authority’s concern on the liquidity management of commercial banks. Furthermore, we find that monetary policy shock is not the main driving force for the business cycles in China, whereas a large fraction of the variation in monetary policy is attributable to the systematic reactions of policy authority to the state of the economy. We also find that the interdependence between China’s monetary policy and stock market is fairly limited at present. |
| Serial Number | WP858 |
| Time | 2015-04-03 |
|