Online from: 2011
Subject Area: Accounting and Finance
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|Title:||Studying on the monetary transmission mechanism in China in the presence of structural changes|
|Author(s):||Yang Fan, (School of Economics of Northeast Normal University, Changchun, China), Teng Jianzhou, (School of Economics and the Key Laboratory for Applied Statistics of Northeast Normal University, Changchun, China)|
|Citation:||Yang Fan, Teng Jianzhou, (2011) "Studying on the monetary transmission mechanism in China in the presence of structural changes", China Finance Review International, Vol. 1 Iss: 4, pp.334 - 357|
|Keywords:||Benchmarking VAR model, China, Monetary transmission mechanism, Quasi-maximum likelihood, Structural changes|
|Article type:||Research paper|
|DOI:||10.1108/20441391111167478 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
|Acknowledgements:||JEL classification – E44, E52, E58Thanks to the financial support from the Special Fund for Basic Scientific Research of Central Colleges (09SSXT109), Humanity and Social Science Fund of the Ministry of Education (08JC790014), Scientific Research Foundation for the Returned Overseas Chinese Scholars and the youth research team project of philosophy and social science of Northeast Normal University.|
Purpose – This paper aims to study the monetary transmission mechanism of China from January 1996 to December 2009 under endogenous structural breaks.
Design/methodology/approach – The study constructs a benchmark VAR model and then adds the proxy variables for four channels of monetary policy transmission as endogenous or exogenous variables in the model to study the transmission mechanism in China. Considering a number of reforms carried out in the economic and financial field in the past two decades and the possibility of structural changes in the monetary transmission mechanism, the methodology proposed by Qu and Perron is employed to allow for endogenous structural changes in the model.
Findings – By conducting a comparative analysis, conclusions can be drawn from this paper that bank lending is always the dominating channel for monetary policy to influence economy in China and the roles of the interest rate channel and the exchange rate channel have been improved in recent years. However, the role of the asset price channel in monetary policy transmission has weakened since late 2001.
Originality/value – This paper combines the quasi-maximum likelihood procedure proposed by Qu and Perron in 2007 with a benchmark VAR model, thus providing a new approach to study monetary transmission mechanism and the conclusions can be more sensible.
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