2017 CFDS Discussion Papers

Makram El-Shagi, Lin Zhang

CFDS Discussion Paper 2017/5

Abstract

We assess the role of silver price fluctuations on Chinese trade and GDP during the late Qing dynasty, when China still had a bimetallic monetary system where silver was mostly used for trade. Using a structural VAR with a newly proposed small sample bias correction and blockwise recursive identication, we identify the impact of silver price shocks on the Chinese economy from 1867 to 1910. We find that silver price changes have substantial impact on trade, but barely affect GDP. Our results can partly be applied to the analysis of the role of vehicle currencies in today's emerging economies.

 

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Jan Klingelhöfer, Rongrong Sun

CFDS Discussion Paper 2017/4

Abstract

We study the Chinese experience and provide evidence that central banks can play an active role in safeguarding financial stability. The narrative approach is used to disentangle macropudential policy actions from monetary actions. We show that reserve requirements, window guidance, supervisory pressure and housing-market policies can be used for macroprudential purposes. Our VAR estimates suggest that well-targeted macroprudential policy has immediate and persistent impact on credit, but no statistically significant impact on output. Macroprudential policy can be used to retain financial stability without triggering an economic slowdown, or as a complement to monetary policy to offset the buildup of financial vulnerabilities arising from monetary easing. The multi-instrument framework enables central banks to achieve both macroeconomic and financial stability.

 

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Makram El-Shagi, Yizhuang Zheng

CFDS Discussion Paper 2017/3

Abstract

In this paper we reexamine the literature on money demand in China published both in English and Chinese language. Over the past 30 years - starting with the paper by Chow (1987) there has been a regular stream of papers assessing the Chinese money demand function. The literature is mostly focusing on income elasticity, stability, and - which is special for
China - the adequate choice and quality of data. In particular regarding stability of money demand, we find a substantial publication bias towards rejecting stability. When controlling for publication bias, and focusing on longer time periods, our paper strongly suggests stable long run money demand in China.

 

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Makram El-Shagi, Lunan Jiang

CFDS Discussion Paper 2017/2

Abstract

Although China’s monetary and financial system differs drastically from its Western counterpart, empirical studies covering this vast economy (the largest by some accounts) have often been simple reestimations or recalibrations of models that have originally been designed to describe US or European monetary policy. In this paper, we aim to provide an assessment of Chinese monetary policy and in particular monetary policy transmission through the bond market into the real economy, which takes into account the peculiarities of the Chinese market. Namely, our model includes both China’s modern attempts at a market based policy shock as well as the “authority” based monetary policy that is a relic of the original banking system; it considers the special nature of the Chinese treasury bond market which is separated in two independent markets with very limited direct arbitrage opportunities between almost identical assets, and finally it incorporates the role of real estate, which played an essential role in China during the last decade.

 

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Jonathan Benchimol, Makram El-Shagi

CFDS Discussion Paper 2017/1

Abstract

Governments, central banks, and private companies make extensive use of expert and market-based forecasts in their decision-making processes. These forecasts can be affected by terrorism, which should be considered by decision makers. We focus on terrorism, as a mostly endogenously driven form of political uncertainty, and use new econometric tests to assess the forecasting performance of market and professional in‡flation and exchange-rate forecasts in Israel. We show that
expert forecasts are better than market-based forecasts, particularly during periods of terrorism. However, forecasting performance and abilities of both market-based and expert forecasts are signifi…cantly reduced during such periods. Thus, policymakers should be particularly attentive to terrorism when considering in‡flation and exchange-rate forecasts.

 

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