The Blind Men and the Elephant

Policy Forum 13 (April 2021)

Instead of a normal policy forum, we want to seize the opportunity to give a glimpse into some of our ongoing work here at the CFDS that highlights why more work in the Chinese financial and monetary system is so important.

Over the last decade with China’s ascent in economic power, there has been an increasing interest in the Chinese economy. For a current work we collected more than 30 papers that estimate monetary policy shocks – i.e., unexpected changes of the policy stance of the People’s Bank of China – and their effect on the Chinese economy.  At first glance, it seems we – the scientific community – have quite a good idea about how monetary policy in China works. There is some controversy about the proper measurement of policy in China, since – unlike the US where the Federal Reserve Bank targets the federal funds rate – China does not have an official intermediate target. Some authors look at alternative interest rates that might fill that role, others look at money supply as the PBoC has been known to pay more attention to quantities than its Western counterparts, and a third group focuses on a narrative analysis of PBoC publications. But despite those differences, most studies find the expected outcomes in terms of the response of prices and production, suggesting that the different methodologies merely approach the same issues from slightly different angles.

Read the full article (in English and Chinese)

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