HenU/INFER Workshop on Applied Macroeconomics 5.5
Program
November 5th - Day 1
Parallel Session 3 A - Monetary Policy in China (I)
03:00 PM - 04:30 PM
Prof. Song (Michael) Zheng
Chinese University of Hong Kong
Special Guest Star Chair
Money Demand in China: A Regional Perspective
Kiril Tochkov - Texas Christian University
03:00 PM - 03:30 PM
Money demand in China: A regional perspective
Kiril Tochkov (Texas Chrisitan University)
The literature on money demand in China has been growing in recent years but it focuses exclusively on the aggregate level. This paper estimates the money demand at the regional level in China, arguing that differences across provinces matter for monetary policy. For this purpose, we first construct monetary aggregates for a sample of provinces over the period 1992-2015 and compare these to the national index. Next, we estimate money demand functions for the set of provinces. The results confirm the existence of a long-term cointegration relationship between the demand for money and its determinants. However, significant regional heterogeneity is detected and its implications for monetary policy are discussed.
Feasibility of Renminbi Price Level Targeting: Better for China’s Housing Prices?
Wen-Chyng Lou - E.SUN Bank Hong Kong Branch
Kuo-chun Yeh - National Taiwan University
Ya-chi Lin - Feng-Chia University
03:30 PM - 4:00 PM
Feasibility of Renminbi Price Level Targeting: Better for China’s Housing Prices?
Wen-Chyng Lou (E.SUN Bank Hong Kong Branch) / Kuo-chun Yeh (National Taiwan University) / Ya-chi Lin (Feng-Chia University)
Following the 2008 financial crisis, many studies have considered new policy frameworks, including price level targeting, originally proposed by Fisher (1913). Taking China’s RMB reform as an example, we compare the various fictive price-stability RMB indexes with the imputed China Foreign Exchange Trade System indexes (CFETS) and find two things. First, the fictive price stability RMB indexes show lower volatility, implying China’s monetary policy does not seek price stability. Second, the correlation and regression analysis indicate monetary policy would not increase China’s housing prices if price level targeting is applied.
Nine Blind Men and the PBoC
Makram El-Shagi - Henan University
Yishuo Ma - Henan University
04:00 PM - 04:30 PM
Nine blind men and the PBoC
Makram El-Shagi / Yishuo Ma (Henan University)
Over the past decade, several dozen papers have been written that identify the People's Bank of China's monetary policy shocks. Yet, what often seems like minor differences in measurements of monetary policy and identifying assumptions yield vastly different implied shocks. In this paper, we pitch 20 shock time series from the literature against each other in a horse race. We use a local projections framework to produce impulse responses based on all shocks for production, prices, money and interest rates and use them to assess the economic plausibility of the competing results. Our results confirm the frequently mentioned relevance of monetary aggregates for Chinese monetary policy but also point the importance of using forward looking policy reaction functions (or account for forward looking variables in a VAR framework) when identifying monetary policy shocks.
Parallel Session 3 B - Macroeconomic Shocks
03:00 PM - 04:30 PM
Prof. Fabio Canova
Norwegian Business School
Special Guest Star Chair
Sectoral Shocks, Production Linkages, and Business Cycles in China
Lunan Jiang - Henan University
Young Sik Kim - Seoul National University
Lin Zhang - Henan University
03:00 PM - 03:30 PM
Sectoral Shocks, Production Linkages, and Business Cycles in China
Lunan Jiang (Henan University) / Young Sik Kim (Seoul National University) / Lin Zhang (Henan University)
This paper builds a dynamic multisector model using production linkages to investigate the macroeconomic dynamics of the Chinese economy. With structural parameters and sectoral shocks calibrated to 46 domestic sectors, the model simulation replicates a large fraction of the volatility and comovement of Chinese aggregate and sector dynamics. Further empirical analysis shows that idiosyncratic components dominate the sectoral productivity shocks during our sample period. Therefore, sector-specific shocks and production linkages are crucial to understanding Chinese business cycles. We also characterize the reactions of the Chinese economy to sectoral shocks at both aggregate and sector levels, which might provide useful guidance for future policy analysis.
Have Monetary Policy Shocks Influenced the Health of European Banks?
Alexander Jung - European Central Bank
03:30 PM - 04:00 PM
Have monetary policy shocks influenced the health of European banks
Alexander Jung (European Central Bank)
Applying high-frequency identification and using a large dataset of European banks (IBSI dataset), this study examines the influence of monetary policy shocks on banks. Overall, we find that easing surprises or an (unexpected) term structure steepening contributed to the health of most European banks. In a low interest-rate environment, central bank information effects dampened the positive effect of pure easing shocks, while the monetary policy transmission through slope surprises remained intact. We demonstrate that Fed monetary policy shocks had significant effects on bank bond yields and stock prices of European banks but exerted no meaningful spillover on their credit risk. Bank-level evidence shows that bank and country effects, the loan regime, and banks’ maturity mismatch explain differences in the transmission of monetary policy shocks to banks.
Household Indebtedness and the Macroeconomic Effects of Tax Changes
Songyup Choi - Yonsei University
Junhyeok Shin - Johns Hopkins University
04:00 PM - 04:30 PM
Household Indebtedness and the Macroeconomic Effects of Tax Changes
Songyup Choi (Yonsei University) / Junhyeok Shin (Johns Hopkins University)
This study investigates whether household indebtedness influences the macroeconomic effects of the U.S. tax policy. We apply a state-dependent local projection method to the exogenous tax shock series by Romer and Romer (2010) and find that a tax cut strongly stimulates output when households are heavily indebted. The expansionary effect of a tax cut in the period of high household debt is particularly significant for (i) private consumption than investment; (ii) the case of a personal income tax than a corporate income tax; (iii) during bad times than good times. These findings support household indebtedness as a measure of liquidity constraints for wealthy hand-to-mouth households at the macro-level. In response to a tax cut, households increase (decrease) labor supply when they are indebted (not indebted). This lack of a neoclassical wealth effect further contributes to an increase in output. The household debt-dependent effects of tax policy are more notable than those of the government spending policy, lending further support to the role of the household liquidity constraint channel of tax policy.