Date and Time: December 2nd, 2016, 2:30 - 4:00 pm
Room: A 101 in the Economics Building (Museum)
We study the Chinese case to tackle two research questions on macroprudential policies: 1.What kind of policy instruments can a central bank apply in safeguarding financial stability? 2. How effective are these instruments? In so doing, we first employ the narrative approach, studying the PBC’s documents to identify the policy intention behind each policy action and hence disentangle those macroprudential policy actions from monetary policy actions.
We find that the PBC mainly uses four types of instruments for the macroprudential purpose: reserve requirement, window guidance, housingmarket related policies, and supervisory pressure. Time series are constructed to measure the tightness/ease of each instrument and the overall macroprudential stance. The VAR estimates, using these indexes while controlling for exogenous monetary shocks, suggest that macroprudential policy measures are jointly effective in curbing the fast growth of credit; this impact is more immediate but shorter-lasting. Monetary policy shocks have significant and persistent effects on credit as well. We find that macroprudential policy responds to the financial conditions faster, compared to monetary policy. Of individual measures, our findings are threefold: i) The required reserve ratio and window guidance are particularly effective in reducing the new bank loans; ii) Window guidance and central bank lending schemes lower the ratio of medium- and long-term bank loans; iii) Following a tightening in the required reserve ratio, window guidance, mortgage rate and downpayment ratio, the consumption loans decline.