Disinflation costs in China and monetary policy regimes

Ferrara, Maria; Garofalo, Antonio

doi:10.1016/j.econmod.2020.09.004

Cited by 4 publications

(3 citation statements)

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“…For China, the intermediate target of monetary policy has been M2 growth since 2000. 1 The central government's ultimate goals are price stability and output growth (panels A and B of Figure 2). Unlike the US economy with the inflation target as the primary goal of monetary policy, China is an emerging market economy and the overriding objective of the central government is to achieve the annual GDP growth target.…”

Section: A Quantity-based Monetary Policymentioning

confidence: 99%

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The Nexus of Monetary Policy and Shadow Banking in China

Chen

Ren

Zha

2018

American Economic Review

345

160

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We study how monetary policy in China influences banks’ shadow banking activities. We develop and estimate the endogenously switching monetary policy rule that is based on institutional facts and at the same time tractable in the spirit of Taylor (1993). This development, along with two newly constructed micro banking datasets, enables us to establish the following empirical evidence. Contractionary monetary policy during 2009–2015 caused shadow banking loans to rise rapidly, offsetting the expected decline of traditional bank loans and hampering the effectiveness of monetary policy on total bank credit. We advance a theoretical explanation of our empirical findings. (JEL E32, E52, G21, O16, O23, P24, P34)

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Section: A Quantity-based Monetary Policymentioning

confidence: 99%

“…For comparison, the inflation and output growth variables on the right-hand side are lagged one period to be consistent with the timing of practical monetary policy actions represented by equation (1).…”

Section: A Conventional Money Growth Rulesmentioning

confidence: 99%

The Nexus of Monetary Policy and Shadow Banking in China

Chen

Ren

Zha

2018

American Economic Review

345

160

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“…Let's now compare the WRs shown in the table above. As for macroprudential policy, for each policy Scenario, savers and banks always bene…t from an active intervention of the authority 18 . Indeed, in this case, negative e¤ects of disin ‡ation are mitigated by a more stable …nancial system.…”

Section: Welfare Analysismentioning

confidence: 99%

Disinflation costs and macroprudential policies: real and welfare effects

Busato,

Ferrara,

Varlese

2023

JES

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PurposeThis paper analyzes real and welfare effects of a permanent change in inflation rate, focusing on macroprudential policy’ role and its interaction with monetary policy.Design/methodology/approachWhile investigating disinflation costs, the authors simulate a medium-scale dynamic general equilibrium model with borrowing constraints, credit frictions and macroprudential authority.FindingsProviding discussions on different policy scenarios in a context where still it is expected high inflation, there are three key contributions. First, when macroprudential authority actively operates to improve financial stability, losses caused by disinflation are limited. Second, a Taylor rule directly responding to financial variables might entail a trade-off between price and financial stability objectives, by increasing disinflation costs. Third, disinflation is welfare improving for savers, while costly for borrowers and banks. Indeed, while savers benefit from policies reducing price stickiness distortion, borrowers are worried about credit frictions, coming from collateral constraint.Practical implicationsThe paper suggests threefold policy implications: the macroprudential authority should actively intervene during a disinflation process to minimize costs and financial instability deriving from it; policymakers should implement a disinflationary policy stabilizing also output; the central bank and the macroprudential regulator should pursue financial and price stability goals, separately.Originality/valueThis paper is the first attempt to study effects of a permanent inflation target reduction in focusing on the macroprudential policy’ role.

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Money, debt, and the effects of fiscal stimulus

Yong

2022

Economic Analysis and Policy

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Disinflation costs in China and monetary policy regimes

Cited by 4 publications

References 41 publications

The Nexus of Monetary Policy and Shadow Banking in China

The Nexus of Monetary Policy and Shadow Banking in China

Disinflation costs and macroprudential policies: real and welfare effects

Money, debt, and the effects of fiscal stimulus

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