{"title":"Distributional Effects of Monetary Policy Shocks in China","authors":"Shirley (Yilin) Ren","doi":"10.1007/s11293-023-09786-5","DOIUrl":null,"url":null,"abstract":"<div><p>The distributional outcomes of monetary policy have garnered increasing attention in recent years. While there has been significant progress on both the theoretical and methodological design of studies on advanced economies, research on China has been limited, partly because of its opaque and unique monetary policy framework. This paper investigates the distributional effects of monetary policy shocks in China from 2003 to 2021, as the central bank converges towards a standard interest-rate based regime. A novel policy shock series for China is constructed using the high-frequency external instrument identification method that addresses endogeneity concerns between macroeconomic factors and policy decisions. A structural vector autoregression system identified by short-run restrictions is then used to analyze the impulse responses of income measures and asset market returns to these shocks. Findings suggest that contractionary monetary policy shocks have a negative impact on inequality in China, by increasing the relative share of income at the top and decreasing the share at the bottom of the distribution. Adverse effects are stronger for lower income groups who derive most of their income from labor and business, and experience large and persistent negative effects from an unanticipated rate hike. Meanwhile, the impacts on top earners are neutral or modestly positive, since their income portfolios are diversified by property holdings. As such, this analysis supports the income composition channel theory in explaining the heterogeneity in household responses to monetary policy shocks.</p></div>","PeriodicalId":46061,"journal":{"name":"ATLANTIC ECONOMIC JOURNAL","volume":"51 4","pages":"287 - 301"},"PeriodicalIF":0.5000,"publicationDate":"2024-01-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"ATLANTIC ECONOMIC JOURNAL","FirstCategoryId":"1085","ListUrlMain":"https://link.springer.com/article/10.1007/s11293-023-09786-5","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
The distributional outcomes of monetary policy have garnered increasing attention in recent years. While there has been significant progress on both the theoretical and methodological design of studies on advanced economies, research on China has been limited, partly because of its opaque and unique monetary policy framework. This paper investigates the distributional effects of monetary policy shocks in China from 2003 to 2021, as the central bank converges towards a standard interest-rate based regime. A novel policy shock series for China is constructed using the high-frequency external instrument identification method that addresses endogeneity concerns between macroeconomic factors and policy decisions. A structural vector autoregression system identified by short-run restrictions is then used to analyze the impulse responses of income measures and asset market returns to these shocks. Findings suggest that contractionary monetary policy shocks have a negative impact on inequality in China, by increasing the relative share of income at the top and decreasing the share at the bottom of the distribution. Adverse effects are stronger for lower income groups who derive most of their income from labor and business, and experience large and persistent negative effects from an unanticipated rate hike. Meanwhile, the impacts on top earners are neutral or modestly positive, since their income portfolios are diversified by property holdings. As such, this analysis supports the income composition channel theory in explaining the heterogeneity in household responses to monetary policy shocks.
期刊介绍：
The Atlantic Economic Journal (AEJ) has an international reputation for excellent articles in all interest areas, without regard to fields or methodological preferences. Founded in 1973 by the International Atlantic Economic Society, a need was identified for increased communication among scholars from different countries. For over 30 years, the AEJ has continuously sought articles that traced some of the most critical economic changes and developments to occur on the global level. The journal''s goal is to facilitate and synthesize economic research across nations to encourage cross-fertilization of ideas and scholarly research. Contributors include some of the world''s most respected economists and financial specialists, including Nobel laureates and leading government officials. AEJ welcomes both theoretical and empirical articles, as well as public policy papers. All manuscripts are submitted to a double-blind peer review process. In addition to formal publication of full-length articles, the AEJ provides an opportunity for less formal communication through its Anthology section. A small point may not be worthy of a full-length, formal paper but is important enough to warrant dissemination to other researchers. Research in progress may be of interest to other scholars in the field. A research approach ending in negative results needs to be shared to save others similar pitfalls. The Anthology section has been established to facilitate these forms of communication. Anthologies provide a means by which short manuscripts of less than 500 words can quickly appear in the AEJ. All submissions are formally reviewed by the Board of Editors. Officially cited as: Atl Econ J
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