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China’s Monetary Policy Communication: Frameworks, Impact, and Recommendations

Summary:
Nice paper by Michael McMahon, Alfred Schipke and Xiang Li. Apart from the communication channels used by PBOC, it gives one a sense of how PBOC conducts monetary policy: Financial markets are eager for any signal of monetary policy from the People’s Bank of China (PBC). The importance of effective monetary policy communication will only increase as China continues to liberalize its financial system and open its economy. This paper discusses the country’s unique institutional setup and empirically analyzes the impact on financial markets of the PBC’s main communication channels, including a novel communication channel. The results suggest that there has been significant progress but that PBC communication is still evolving toward the level of other major economies. The paper

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Nice paper by Michael McMahon, Alfred Schipke and Xiang Li. Apart from the communication channels used by PBOC, it gives one a sense of how PBOC conducts monetary policy:

Financial markets are eager for any signal of monetary policy from the People’s Bank of China (PBC). The importance of effective monetary policy communication will only increase as China continues to liberalize its financial system and open its economy. This paper discusses the country’s unique institutional setup and empirically analyzes the impact on financial markets of the PBC’s main communication channels, including a novel communication channel. The results suggest that there has been significant progress but that PBC communication is still evolving toward the level of other major economies. The paper recommends medium-term policy reforms and reforms that can be adopted quickly.

As a Mint piece argued, if central bank independence is so important for investors, how China continues to get funds…

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Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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