Like Playing a Fiddle to a Cow? Identifying the Effect of Chinese Monetary Policy Announcements

This study evaluates how relevant Chinese monetary policy announcements are to Chinese financial markets and the real side of the economy. Chinese monetary policy is identified by estimating a “target” factor measuring policy surprises and a “path” factor measuring future expectations of policy using price changes to Chinese derivatives on policy announcement dates. Local projection results show that 1) Chinese Treasury yields and interbank rates respond persistently; 2) Equities and forex markets do not respond to policy announcements; 3) Future expectations of Chinese monetary policy play a larger role than surprises, and 4) Real variables show evidence of policy transmission