آیا در چین سیاست های پولی مهم است ؟ یک روایت رویکردی

This paper applies the narrative approach to Chinese monetary policy to solve two problems of policy measurement. The first problem arises because the PBC (the Chinese central bank) applies multiple instruments and none of them alone can adequately reflect changes in its monetary policy. The second one is the classical identification problem: the causation direction of the observed interaction between central bank actions and real activity needs to be identified. The PBC's documents are used to infer the intentions behind policy movements. Three shocks are identified for the period 2000–2011 that are exogenous to real output. Estimates using these shocks and various robustness tests indicate that monetary policy has large and persistent impact on output in China.

Does monetary policy matter in China? Very few studies have addressed this issue, but reported somewhat mixed findings (see, e.g., Dickinson and Liu, 2007 and Sun et al., 2010). On the other hand, it is a well-established fact that in advanced economies, monetary policy has a significant impact on output (at least in the short run), thanks to numerous contributions (see, e.g., Bernanke and Blinder, 1992, Bernanke and Gertler, 1995, Blanchard, 1990, Friedman, 1995 and Romer and Romer, 1989). Yet, given the substantial differences between China and those economies in their central banking strategies and practices, it is unclear that we can simply extend this conclusion to the case of China. Therefore, it is necessary to conduct an independent study to examine the effectiveness of monetary policy in China. In order to estimate the effect of monetary policy, first we should be able to measure monetary policy changes (i.e., to describe monetary policy in a quantitative way). The validity of this measure is the premise of an accurate estimate of the effects of monetary policy (see, e.g., Bernanke and Mihov, 1998, Romer and Romer, 1989 and Romer and Romer, 2004). However, the study of China's monetary policy faces two measurement problems. The first is which policy instrument should be used as a policy indicator. The central bank of China, the People's Bank of China (PBC2), does not follow the standard one-instrument operating procedure that advanced economies adopt.3 Rather, it uses multiple instruments, including unconventional administrative measures, to achieve various tasks. This operating procedure suggests that all of its frequently-applied policy instruments contain information about its policy (see, e.g., Chen et al., 2011, He and Pauwels, 2008, Shu and Ng, 2010 and Xiong, 2012). On the other hand, these instruments are different in nature and their changes are not necessarily identical in terms of the frequency and magnitude. None of them alone can represent the behavior of all others and hereby adequately reflect changes in the PBC's policy stance. The second problem is known as the identification problem in the literature. That is, the causation direction of the observed interaction between monetary policy and economic fluctuations needs to be identified. A simple regression of output on changes in monetary policy is very likely to result in biased estimates of the effect of monetary policy as the causation runs in the other direction as well. For example, if the central bank takes counter-cyclical actions and stabilizes the level of economic activity absolutely, “then an observer … would see (changes in the interest rate) accompanied by a steady level of aggregate activity. He would presumably conclude that monetary policy has no effects at all, which would be precisely the opposite of the truth” (Kareken & Solow, 1963: 16). By contrast, economic fluctuations in consequence of exogenous policy movements should reflect the impact of monetary policy, but not other influences (see Romer & Romer, 2004). Hence, it is necessary to isolate exogenous components of policy changes from endogenous policy responses. One approach to overcome these two challenges is the narrative approach, which was pioneered by Friedman and Schwartz in their Monetary History of the United States ( Friedman & Schwartz, 1963) and has been applied by Romer and Romer in a series of studies ( Romer and Romer, 1989 and Romer and Romer, 2004). 4 This approach relies on the reading of the central bank's documents to infer additional information on policy-makers' intentions. The policy stance is identified and in addition, the driving force of each policy movement is detected. Only those policy shifts are defined as exogenous that are not driven by current and future developments on the real side of economy. These shocks are exogenous with respect to the state of the real economy. One study by Shu and Ng (2010) has applied the narrative approach to examine monetary policy of the PBC.5 They study China Monetary Policy Report, a quarterly executive report of monetary policy of China, and construct a time series of the PBC's policy stance index (tight, neutral or easy, for example). The Shu-Ng index is useful as it can be used as a monetary policy indicator to solve the policy indicator problem. However, Shu and Ng (2010) shies away from the identification problem and their index does not separate exogenous policy changes from endogenous policy reactions. My paper complements Shu and Ng's study with another independent reading of the PBC's historical records and singles out exogenous components in policy changes. This paper uses two sources of the PBC's documents: short summaries of quarterly Monetary Policy Committee's meeting and China Monetary Policy Report. Both documents include explicit statements of the PBC's monetary policy stance for the next period and reasoning of changes in policy. Based on this information, three exogenous shocks are identified as episodes, in which the PBC shifted policy to contraction to rein in inflation. Estimates using these shocks and various robustness tests indicate that monetary policy has large and persistent effects on output in China. A comparison with other conventional measures suggests that my narrative-based shocks perform better in estimating the effects of monetary policy. This paper proceeds as follows. Section 2 provides institutional backgrounds of Chinese monetary policy and highlights the monetary policy indicator problem. Section 3 presents a simple framework, explaining why a policy measure with endogenous components is likely to lead to biased estimates. Section 4 identifies three exogenous policy shifts of the PBC through reading its documents. Section 5 examines the impacts of these shocks on output and inflation. Section 6 concludes.

As a fast growing emerging economy, China has attracted the world's attention. Yet, its institutions and functioning framework remain different from those in advanced economies. This paper enriches the literature by looking into the institutional details of the PBC, focuses on how and with what effects monetary policy is implemented in China. At the moment, the PBC uses many policy instruments and none of them can be described as its principal tool. Its operating procedures vary over time. Its reaction function can hardly be described with a time-invariant equation. All the PBC's institutional specifics suggest that the conventional monetary policy measures can neither sufficiently reflect its policy changes nor can estimates using those conventional measures be free of bias. To overcome these measurement challenges, I use the narrative approach in this paper to disentangle the PBC's exogenous policy changes from its endogenous components. For the period of 2000–2011, I identify three exogenous policy changes as those driven by inflationary pressure. These exogenous policy shocks are uncorrelated with developments on the real side of economy. Their impact on the economy gives an unbiased estimate of the effects of monetary policy. Estimates using my exogenous shocks indicate that monetary policy in China has strong effects on output. My baseline regression suggests that a shift to fight inflation lowers industrial production by almost 6%. This is further confirmed by most of my robustness tests. Another important finding is that this suppression appears to be perennial with the negative impact remaining at a substantial level even after five years. These findings suggest that the PBC, like many central banks in advanced economies, is able to exert strong impacts on the real economy.