Essays on Effects of Monetary Policy in China and Japan

Resumen

This thesis seeks to shed a new light on the macroeconomic and financial effects of China’s monetary policy and Japan’s unconventional monetary policy by means of multi-equation time series models. It consists of four empirical chapters. The specific econometric techniques employed in this thesis include a factor-augmented vector autoregressive model (FAVAR), a Markov switching vector autoregressive model (MS-VAR), and a Markov switching structural factor-augmented vector autoregressive model (MS-SFAVAR). The formulation of these models is dictated by the research aims and objectives. The first empirical chapter studies the effects of China’s monetary policy has positive and significant effects on the economy. Using the FAVAR model, this chapter documents that the effectiveness of China’s monetary policy is limited to the quantity-based direct monetary instruments. More specifically, the quantity-based direct monetary instruments have positive and significant effects on the economy and the price level in China. By contrast, the effects of the price-based indirect monetary instruments are generally insignificant. Turning to the stock market, the second empirical chapter employs the MS-VAR model to show that China’s monetary policy has asymmetric effects on the stock market in a bull market and in a bear market. The effects of China’s monetary policy on the stock market in a bull market are stronger than in a bear market. The third empirical chapter investigates the effects of China’s monetary policy on the tourism market. In this empirical chapter, I firstly outline a framework to analyse the effects of monetary policy on the tourism market. The results indicate that money supply, exchange rate, and other assets exert negative and significant effects on the China’s tourism market. Turning to the Japan’s unconventional monetary policy, the fourth empirical chapter identifies periods in which monetary policy was effective and periods in which it failed.In the “effective” period, Japan’s unconventional monetary policy exerts positive and significant effects on the economy and the price level. In the “failure” period, Japan’s unconventional monetary policy has positive and significant effects on the financial market, the economy and the price level. In general, my research findings highlight positive and significant effects of China’s monetary policy on the economy. Considering the characteristics of China’s economic transformation, the effectiveness of monetary policy is also limited by a number of factors, such as the low levels of ownership marketization. The thesis also looks at how the economy responds to monetary policy with a particular emphasis on the stock market and the tourism market. In this regard, the effectiveness of China’s monetary policy is confirmed also for these sectors. Moreover, this thesis quantifies the macroeconomic and financial effects of three rounds of unconventional monetary policy in Japan.