The time-varying effect of monetary policy in China

ABSTRACT

A sound understanding of monetary transmission mechanism is valuable because it helps the central bank to determine the proper course of monetary policy to balance growth and inflation. As China’s domestic financial markets deepen and develop further towards a market-based system, the country’s monetary policy instrument and transmission should continue to improve for managing economic conditions. Using a short-term key interest rate as standard monetary policy tool and time-varying parameter techniques, this study empirically demonstrates that China’s monetary policy framework is in the midst of transitioning to a market-based approach.

KEYWORDS:

• Monetary policy
• interest rates
• financial reform
• time-varying parameters
• emerging market economy

JEL CLASSIFICATION:

• C32
• E31
• E42
• E52

Disclosure statement

No potential conflict of interest was reported by the author.