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Monetary transmission mechanisms and the macroeconomy in China: VAR/VECM approach and Bayesian DSGE model simulation

Sun, Lixin (2011)
Ph.D. thesis, University of Birmingham.

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In this thesis, by employing VAR/VECM approach and Bayesian Dynamic Stochastic General Equilibrium (DSGE) Model we have studied and tested the transmission mechanisms of China’s monetary policy and measured the effects of the monetary policy shocks and other exogenous macro shocks on the real macro economy to uncover the attributes of China’s business cycle. On the basis of the specified VAR/VEC Models, a bank lending channel, an interest rate channel and an asset price channel have been identified by using the time series (monthly) data of banks balance sheet variables (deposits, loans, securitises) across bank categories (aggregate banks, state banks, non-state banks) and the macroeconomic variables (output, CPI inflation, exports, imports, foreign exchange reserves) from 1996 to 2006.
We’ve estimated a benchmark Bayesian DSGE Model with Taylor’s Rule and a modified Smets-Wouters Model with money growth rule by using China’s quarterly data from 1996 to 2006 to simulate the business cycle. The estimated values of the parameters demonstrate many unique features of China’s economy and policies operations. We find that investment and preference shocks drive the forecasted GDP variance in the long run in Taylor’s rule model, but in the money growth rule model, the main contributions to the variations of the output are government expenditure, preference and productive shocks.

Type of Work:Ph.D. thesis.
Supervisor(s):Horsewood, N. (Nick) and Ford, James and Dickinson, David G.
School/Faculty:Colleges (2008 onwards) > College of Social Sciences
Department:Business School, Department of Economics
Keywords:China’s Monetary Policy, Monetary Transmission Mechanism, VAR/VEC Model, Bayesian Approach, DSGE Model, Macroeconomy.
Subjects:HB Economic Theory
Institution:University of Birmingham
ID Code:2900
This unpublished thesis/dissertation is copyright of the author and/or third parties. The intellectual property rights of the author or third parties in respect of this work are as defined by The Copyright Designs and Patents Act 1988 or as modified by any successor legislation. Any use made of information contained in this thesis/dissertation must be in accordance with that legislation and must be properly acknowledged. Further distribution or reproduction in any format is prohibited without the permission of the copyright holder.
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