Content analysis is used to analyze 60 years of FOMC minutes. Since there is no unique algorithm to quantify content two different algorithms are applied. Wordscores compares content relative to a chosen benchmark while DICTION is an alternative algorithm that is specifically designed to capture various elements that capture the sentiment or tone conveyed in a text. The resulting indicators are then incorporated into a VAR. The content of FOMC minutes is found to be significantly related to the state of the economy, notably real GDP growth and changes in the fed funds rate. However, the relationship between content and macroeconomic conditions changes after 1993 when minutes are made public with a lag. Both content indicators also suggest substantive changes in the content of FOMC minutes since the 1950s in terms of the FOMC’s dovishness or hawkishness.
{"title":"US Monetary Policy Since the 1950s and the Changing Content of FOMC Minutes","authors":"P. Siklos","doi":"10.2139/ssrn.3452300","DOIUrl":"https://doi.org/10.2139/ssrn.3452300","url":null,"abstract":"Content analysis is used to analyze 60 years of FOMC minutes. Since there is no unique algorithm to quantify content two different algorithms are applied. Wordscores compares content relative to a chosen benchmark while DICTION is an alternative algorithm that is specifically designed to capture various elements that capture the sentiment or tone conveyed in a text. The resulting indicators are then incorporated into a VAR. The content of FOMC minutes is found to be significantly related to the state of the economy, notably real GDP growth and changes in the fed funds rate. However, the relationship between content and macroeconomic conditions changes after 1993 when minutes are made public with a lag. Both content indicators also suggest substantive changes in the content of FOMC minutes since the 1950s in terms of the FOMC’s dovishness or hawkishness.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129761757","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The purpose of this essay is to present how the expansion of the Chinese monetary power may impact Brazil and whether the Brazilian legal environment may be of relevance to the Chinese investment and trade strategies. This study is part of research in progress that has been developed in the Global Law and Development Study Center at the School of Law of Getulio Vargas Foundation in Sao Paulo – Brazil. In order to present this issue, the author analyzes the Chinese measures related to the utilization of the Renminbi (RMB) in investments and trade from the Brazilian economic, political, and legal perspective. The main research question is: whether or not the Brazilian legal environment promotes the adoption of the RMB in the Chinese trade strategies, and direct and portfolio investments in Brazil? The author tries to answer this question by analyzing Brazilian laws and rules concerning with investments and trade. The preliminary conclusions suggest that: (i) the Brazilian legal framework may represent obstacles to or even hinder trade, and foreign investments in Brazil, and consequently may not prove to be favorable to the use of the RMB in the economic relations between Brazil and China; (ii) China has still not been able to carry out - if there is such an intention - to create in Brazil a zone of monetary dependence backed by the RMB; and (iii) the parallel legal framework structured by China together with the Brazilian bureaucracy, translated into cooperation agreements, the investment mechanism based on the China-LAC Industrial Cooperation Investment Fund Co., Ltd. - Claifund, and the BRICS CRA suggests the attempts to establish an equivalent legal reality to the use of the RMB as a means of payment in economic relations between Brazil and China, although without success until this moment.
{"title":"The Chinese Monetary Power: The Brazilian Legal Environment as an Important Institutional Variable for the Adoption of the Renminbi in the Chinese Investments in Brazil","authors":"Alexandre Coelho","doi":"10.2139/ssrn.3430878","DOIUrl":"https://doi.org/10.2139/ssrn.3430878","url":null,"abstract":"The purpose of this essay is to present how the expansion of the Chinese monetary power may impact Brazil and whether the Brazilian legal environment may be of relevance to the Chinese investment and trade strategies. This study is part of research in progress that has been developed in the Global Law and Development Study Center at the School of Law of Getulio Vargas Foundation in Sao Paulo – Brazil. In order to present this issue, the author analyzes the Chinese measures related to the utilization of the Renminbi (RMB) in investments and trade from the Brazilian economic, political, and legal perspective. The main research question is: whether or not the Brazilian legal environment promotes the adoption of the RMB in the Chinese trade strategies, and direct and portfolio investments in Brazil? The author tries to answer this question by analyzing Brazilian laws and rules concerning with investments and trade. The preliminary conclusions suggest that: (i) the Brazilian legal framework may represent obstacles to or even hinder trade, and foreign investments in Brazil, and consequently may not prove to be favorable to the use of the RMB in the economic relations between Brazil and China; (ii) China has still not been able to carry out - if there is such an intention - to create in Brazil a zone of monetary dependence backed by the RMB; and (iii) the parallel legal framework structured by China together with the Brazilian bureaucracy, translated into cooperation agreements, the investment mechanism based on the China-LAC Industrial Cooperation Investment Fund Co., Ltd. - Claifund, and the BRICS CRA suggests the attempts to establish an equivalent legal reality to the use of the RMB as a means of payment in economic relations between Brazil and China, although without success until this moment.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"51 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125991482","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Monetary policy shocks affect interest rates at long horizons (10 years or more). Furthermore, the private sector’s real GDP forecasts are revised upward in response to a monetary tightening. These facts challenge the prevailing theories in academic and policy circles. In this paper, I propose a micro-founded model to rationalize those facts, based on the signaling channel of monetary policy. I consider a framework where the central bank has private information about future economic conditions. Agents update their beliefs according to Bayes’ theorem. Policy actions play a signaling role, and may therefore rationalize the above empirical findings.
{"title":"Term Structure, Forecast Revision and the Signaling Channel of Monetary Policy","authors":"Donghai Zhang","doi":"10.2139/ssrn.3357480","DOIUrl":"https://doi.org/10.2139/ssrn.3357480","url":null,"abstract":"Monetary policy shocks affect interest rates at long horizons (10 years or more). Furthermore, the private sector’s real GDP forecasts are revised upward in response to a monetary tightening. These facts challenge the prevailing theories in academic and policy circles. In this paper, I propose a micro-founded model to rationalize those facts, based on the signaling channel of monetary policy. I consider a framework where the central bank has private information about future economic conditions. Agents update their beliefs according to Bayes’ theorem. Policy actions play a signaling role, and may therefore rationalize the above empirical findings.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127888404","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Treasuries are not money-like financial assets, but the market based credit system is the financial infrastructure that uses safe and liquid assets like Treasuries as raw material to produce money-like financial claims, i.e. shadow money. The ratio of Treasuries useable by money dealers, i.e. securities dealers or money market mutual funds, to demand for money-like financial claims by institutional investors is a statistically and economically significant determinant of spreads in both money and bond markets beyond conventional determinants. The ratio measures the pressure on the financial system to provide additional safe collateral to back money-like claims or, if that is not possible, to issue unsecured short-term liabilities. Money demand by institutional investors is an indirect source of demand for safe debt securities as collateral for shadow money, distinct from demand for safe debt securities as long term investments. The empirical findings are useful to assess financial stability.
{"title":"The Pressure to Create Cash Substitutes","authors":"Chris Becker","doi":"10.2139/ssrn.3329150","DOIUrl":"https://doi.org/10.2139/ssrn.3329150","url":null,"abstract":"Treasuries are not money-like financial assets, but the market based credit system is the financial infrastructure that uses safe and liquid assets like Treasuries as raw material to produce money-like financial claims, i.e. shadow money. The ratio of Treasuries useable by money dealers, i.e. securities dealers or money market mutual funds, to demand for money-like financial claims by institutional investors is a statistically and economically significant determinant of spreads in both money and bond markets beyond conventional determinants. The ratio measures the pressure on the financial system to provide additional safe collateral to back money-like claims or, if that is not possible, to issue unsecured short-term liabilities. Money demand by institutional investors is an indirect source of demand for safe debt securities as collateral for shadow money, distinct from demand for safe debt securities as long term investments. The empirical findings are useful to assess financial stability.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124064454","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ricardo Correa, Teodora Paligorova, Horacio. Sapriza, A. Zlate
We analyze the impact of monetary policy on cross-border bank flows for a large sample of countries over two decades. We find evidence in favor of a cross-border risk-taking channel, as the monetary policy stance of source countries is an important determinant of cross-border bank flows. A relatively tighter monetary policy in source countries prompts banks to reallocate their lending toward safer foreign counterparties. The cross-border reallocation of credit is more pronounced for source countries with lower-capitalized banks. Also, the reallocation is directed toward foreign borrowers in relatively safer destinations, such as advanced economies or economies with investment-grade sovereign ratings.
{"title":"Cross-Border Bank Flows and Monetary Policy","authors":"Ricardo Correa, Teodora Paligorova, Horacio. Sapriza, A. Zlate","doi":"10.17016/IFDP.2018.1241","DOIUrl":"https://doi.org/10.17016/IFDP.2018.1241","url":null,"abstract":"\u0000 We analyze the impact of monetary policy on cross-border bank flows for a large sample of countries over two decades. We find evidence in favor of a cross-border risk-taking channel, as the monetary policy stance of source countries is an important determinant of cross-border bank flows. A relatively tighter monetary policy in source countries prompts banks to reallocate their lending toward safer foreign counterparties. The cross-border reallocation of credit is more pronounced for source countries with lower-capitalized banks. Also, the reallocation is directed toward foreign borrowers in relatively safer destinations, such as advanced economies or economies with investment-grade sovereign ratings.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"75 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127244346","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we examine how professional forecasters’ expectations and expectation uncertainty have reacted to the ECB’s interest rate decisions and non-conventional monetary policy measures during the period 1999-2017. The analysis makes use of a conventional dif-in-dif type set up with different time series tools. The results indicate that expectations have been sensitive to policy actions, but all forecasters’ reactions do not seem to follow the basic predictions of a standard New Keynesian model. Also the relationship between inflation and output forecasts does not seem to follow a Phillips curve type relationship. Moreover, short- and long term reactions to policy are often weakly related and of different sign. Interestingly, subjective forecast uncertainty measures are very sensitive to policy measures. Thus, there seems to be much heterogeneity in forecasters’ reactions to most policy decisions. All uncertainty measures, including long-term inflation uncertainty, have increased over time. This has to be taken into account when considering the anchoring of inflation expectations to the inflation target.
{"title":"Effects of Monetary Policy Decisions on Professional Forecasters’ Expectations and Expectations Uncertainty","authors":"S. Oinonen, Maritta Paloviita, M. Virén","doi":"10.2139/ssrn.3288387","DOIUrl":"https://doi.org/10.2139/ssrn.3288387","url":null,"abstract":"In this paper, we examine how professional forecasters’ expectations and expectation uncertainty have reacted to the ECB’s interest rate decisions and non-conventional monetary policy measures during the period 1999-2017. The analysis makes use of a conventional dif-in-dif type set up with different time series tools. The results indicate that expectations have been sensitive to policy actions, but all forecasters’ reactions do not seem to follow the basic predictions of a standard New Keynesian model. Also the relationship between inflation and output forecasts does not seem to follow a Phillips curve type relationship. Moreover, short- and long term reactions to policy are often weakly related and of different sign. Interestingly, subjective forecast uncertainty measures are very sensitive to policy measures. Thus, there seems to be much heterogeneity in forecasters’ reactions to most policy decisions. All uncertainty measures, including long-term inflation uncertainty, have increased over time. This has to be taken into account when considering the anchoring of inflation expectations to the inflation target.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114591134","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the impact of monetary policy on housing prices in China with a VAR model. Granger causality tests, impulse response functions, and variance decompositions are used to analyze the impacts of two monetary policy variables, market-based short-term interest rates and money supply, on housing prices. The results show that a contractionary monetary policy will cause the growth rate of housing prices to decline in China. In particular, a positive shock to market-based interest rates measured by the 7-day interbank offered rate has a significant and negative effect on housing prices in a range from five months to one and a half years after the shock takes place. However, our paper finds no evidence that supports the significant impact from money supply on housing prices. The results of our paper imply that the market-based short-term interest rates are effective monetary policy instruments for the central bank in China to conduct its policy to affect housing prices.
{"title":"The Impact of Monetary Policy on Housing Prices in China","authors":"Shen Chen, Wan Wei, Peng Huang","doi":"10.2139/ssrn.3355856","DOIUrl":"https://doi.org/10.2139/ssrn.3355856","url":null,"abstract":"This paper examines the impact of monetary policy on housing prices in China with a VAR model. Granger causality tests, impulse response functions, and variance decompositions are used to analyze the impacts of two monetary policy variables, market-based short-term interest rates and money supply, on housing prices. The results show that a contractionary monetary policy will cause the growth rate of housing prices to decline in China. In particular, a positive shock to market-based interest rates measured by the 7-day interbank offered rate has a significant and negative effect on housing prices in a range from five months to one and a half years after the shock takes place. However, our paper finds no evidence that supports the significant impact from money supply on housing prices. The results of our paper imply that the market-based short-term interest rates are effective monetary policy instruments for the central bank in China to conduct its policy to affect housing prices.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133553132","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract Some have argued that nominal income targeting is desirable because it would replicate characteristics of a free banking regime. However, the degree to which this is true and desirable depends on the properties of commodity-based monetary regimes. In this paper, I provide a model of commodity money. I find that a pure commodity money regime can only generate an efficient stationary equilibrium by divine coincidence or by giving policymakers control over the supply of the commodity. The introduction of bank notes makes it much more likely that the economy will achieve an efficient equilibrium. In particular, in a commodity-based system, bank notes are equivalent to call options on the commodity and the commodity holdings are equivalent to a put option on the commodity. Assuming that there is no risk-free arbitrage in equilibrium, then both bank notes and the commodity will have an expected rate of return equal to the risk-free rate. If the risk-free rate is equal to the rate of time preference, then this commodity regime is efficient. A free banking system would therefore not only minimize deviations between the supply and demand for money, but it would also (potentially) implement the Friedman rule. Both market-based and more conventional nominal income targeting regimes are unlikely to replicate both features of a free banking system unless the nominal income target has a deflationary bias.
{"title":"Commodity Money, Free Banking, and Nominal Income Targeting: Lessons for Monetary Policy Reform","authors":"Joshua R. Hendrickson","doi":"10.2139/ssrn.3253166","DOIUrl":"https://doi.org/10.2139/ssrn.3253166","url":null,"abstract":"Abstract Some have argued that nominal income targeting is desirable because it would replicate characteristics of a free banking regime. However, the degree to which this is true and desirable depends on the properties of commodity-based monetary regimes. In this paper, I provide a model of commodity money. I find that a pure commodity money regime can only generate an efficient stationary equilibrium by divine coincidence or by giving policymakers control over the supply of the commodity. The introduction of bank notes makes it much more likely that the economy will achieve an efficient equilibrium. In particular, in a commodity-based system, bank notes are equivalent to call options on the commodity and the commodity holdings are equivalent to a put option on the commodity. Assuming that there is no risk-free arbitrage in equilibrium, then both bank notes and the commodity will have an expected rate of return equal to the risk-free rate. If the risk-free rate is equal to the rate of time preference, then this commodity regime is efficient. A free banking system would therefore not only minimize deviations between the supply and demand for money, but it would also (potentially) implement the Friedman rule. Both market-based and more conventional nominal income targeting regimes are unlikely to replicate both features of a free banking system unless the nominal income target has a deflationary bias.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-09-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124758728","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates the implications of heterogeneous price rigidities across sectors for the distributional and aggregate effects of monetary policy. First, we identify and characterize analytically a new set of earnings and expenditure channels of monetary policy that emerge in the presence of sectoral heterogeneity. Second, we establish empirically that (i) prices are more rigid in sectors selling to college-educated households, (ii) prices are more rigid in sectors employing college-educated households, and (iii) sectors that employ college-educated households also sell more to these households. These new facts suggest that monetary policy stabilizes sectors that matter relatively more for college-educated households, due to an expenditure channel (from (i)), an earnings channel (from (ii)), and their amplification by feedback loops (from (iii)). Finally, we develop a multi-sector incomplete-markets Heterogeneous Agent New Keynesian model, in which households of different education levels work and consume in different sectors. We quantify the aggregate and distributional effects from heterogeneous price rigidities using this model. In the baseline calibration, we find that the consumption of college-educated households is 22% more sensitive to monetary policy shocks as that of non-college households, while the aggregate real effect of monetary policy is 5% stronger than with homogeneous price rigidities.
{"title":"Heterogeneous Price Rigidities and Monetary Policy","authors":"C. Clayton, Xavier Jaravel, A. Schaab","doi":"10.2139/ssrn.3186438","DOIUrl":"https://doi.org/10.2139/ssrn.3186438","url":null,"abstract":"This paper investigates the implications of heterogeneous price rigidities across sectors for the distributional and aggregate effects of monetary policy. First, we identify and characterize analytically a new set of earnings and expenditure channels of monetary policy that emerge in the presence of sectoral heterogeneity. Second, we establish empirically that (i) prices are more rigid in sectors selling to college-educated households, (ii) prices are more rigid in sectors employing college-educated households, and (iii) sectors that employ college-educated households also sell more to these households. These new facts suggest that monetary policy stabilizes sectors that matter relatively more for college-educated households, due to an expenditure channel (from (i)), an earnings channel (from (ii)), and their amplification by feedback loops (from (iii)). Finally, we develop a multi-sector incomplete-markets Heterogeneous Agent New Keynesian model, in which households of different education levels work and consume in different sectors. We quantify the aggregate and distributional effects from heterogeneous price rigidities using this model. In the baseline calibration, we find that the consumption of college-educated households is 22% more sensitive to monetary policy shocks as that of non-college households, while the aggregate real effect of monetary policy is 5% stronger than with homogeneous price rigidities.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133444653","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We estimate the interdependence between Chinese monetary policy and financial stress using structural vector autoregression. To solve the simultaneity problem, we employ a strategy including both short‐run and long‐run restrictions that maintains the qualitative properties of monetary policy shocks derived from the literature. This method is applied to Chinese monthly data, together with a newly constructed index of financial stress in this paper. Our findings suggest there exists strong interdependence between monetary policy and financial stress. The financial stress index increases immediately by 0.4 of its standard deviation after a monetary policy shock that raises the M2 growth rate by 1 percentage point. An increase of financial stress by one standard deviation leads to a decline in the M2 growth rate by 2 percentage points.
{"title":"Identifying the Interdependence between Monetary Policy and Financial Stress: Evidence from China","authors":"Rong Li, Xiaohui Tian","doi":"10.1111/1468-0106.12174","DOIUrl":"https://doi.org/10.1111/1468-0106.12174","url":null,"abstract":"We estimate the interdependence between Chinese monetary policy and financial stress using structural vector autoregression. To solve the simultaneity problem, we employ a strategy including both short‐run and long‐run restrictions that maintains the qualitative properties of monetary policy shocks derived from the literature. This method is applied to Chinese monthly data, together with a newly constructed index of financial stress in this paper. Our findings suggest there exists strong interdependence between monetary policy and financial stress. The financial stress index increases immediately by 0.4 of its standard deviation after a monetary policy shock that raises the M2 growth rate by 1 percentage point. An increase of financial stress by one standard deviation leads to a decline in the M2 growth rate by 2 percentage points.","PeriodicalId":355111,"journal":{"name":"PSN: Other Monetary Policy (Topic)","volume":"58 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122868219","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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