WANG Shaolin，etc：Macroeconomic Effects of Monetary Policy Transparency in China ——Empirical Study Based on PTVP-SV-FAVAR Model

Abstract：Pursuing transparency of monetary policy has been becoming a major policy choice for worldwide nations since 1990s, and it is also an important phenomenon in central bank practice. Therefore, examining its macroeconomic effects is getting more and more attention both in theoretical and practical fields. To empirically analyze the transparency of monetary policy in China, this paper constructs a PTVP-SV-FAVAR model on the basis of traditional VAR model. Firstly, time-varying set of parameters is set to characterize the time variability of economic structure and the behavior of economic agents in transition economies. Secondly, stochastic volatility is introduced to capture the time-varying shock of the economic structure. Finally, the factor method is applied to make sure the maximum entirety of information in economic system. The empirical results show that transparency of monetary policy in China lowered the level of inflation from 1998 to 2006, but raised that level during 2007 to 2011. It enhances persistence of inflation, reduces the growth of output in the short term, but improves that in long term. The transparency of monetary policy is conducive to the stability of the growth of output, but exacerbates the volatility of inflation, which is much more obvious in enhancement period of uncertainty in macro-economy.

Key words： Monetary Policy    Transparency    Inflation    Output

source:Finance & Trade Economics ,No.12,2014