Policy Evaluation Of Monetary Policy And Macroprudential Policy In China

Establishing and improving the two-pillar regulatory framework of monetary policy and macro-prudential policy have become a major part of China's macro-regulatory reform.Therefore quantitatively evaluating monetary and macro-prudential policies' effects on economy and finance is an important issue.In addition,in the practice of constructing the two-pillar policy framework,monetary policy and macro-prudential policy have some dependencies on both objectives and transmission channels.This makes studying the relationship between monetary and macro-prudential policies' effects being great value.Most of the existing literature analyzed the effects of monetary and macro-prudential policies with dynamic stochastic general equilibrium model(abbreviated as DSGE).Through modelling the entire economic system and policy decision mechanism,simulation results of the two policies' effect were obtained.In this thesis,we adopt a new route,performing a econometric analysis and evaluation of the monetary and macro-prudential policies'effect.Different from DSGE model,this thesis focuses on ex-post assessment of the policies and only models the policy-making process.And the freedom of modelling is larger since a data-driven method is adopted.Additionally,the model specification is tested to ensure the reality and reliability of the conclusions.In the empirical analysis,this thesis first constructs indexes of monetary and macro-prudential policies,then combines macro-economic policy evaluation method with machine learning to evaluate monetary and macro-prudential policies' effect on financial stability,economic growth and price stability.Compared with the existing studies,the main contributions of this thesis are as follows:First,a modern econometric model of macro-economic policy evaluation is used to analyze monetary and macro-prudential policies' effects,which are investigated under the framework with potential outcomes.The econometric analysis of causal effects has by now undergone substantial development and progress.However,because of difficulties faced by the macro-economic policy evaluation,there are few studies in this field.The thesis first introduces this method to analyze the real problem in China.Besides,the dynamic treatment effect defined under this framework is the corresponding part of the impulse response function,then we can get similar results as the classical models.From this point of view,the econometric macro-economic policy evaluation method provides a new perspective for macro-economic analysis.Secondly,since the two-pillar regulatory framework is an major part of macro-regulatory reform in China,research on this field is very hot.However,so far,this paper is the first one to empirically analyze the effect of the two-pillar regulatory policy in China,because of the lack of available data and appropriate econometric tools.This thesis,not only introduces the new econometric model,but also constructs the data needed in the analysis.Through detailed poring over the monetary and macro-prudential policies' history in China,we identify the monetary policy index MIt and the macro-prudential policy index MPIt to dynamically illustrate the intensity of the policies.For the robust check,we also identify he monetary policy communication index MCt and the macro-prudential policy communication index MPCt.In addition,SRISK in China is calculated to illustrate the financial stability.Thirdly,for the first time,combining machine learning methods with the econometric model of macro-economic policy evaluation to increase the freedom of modelling is proposed.We select 61 variables from 161 macro-economic variables and form a information set containing 732 controls with lagging 1-13 periods of these 61 variables to fit the decision-making mechanism of policy choice using machine learning approach.By doing this,the model mis-specification problem caused by only depending on a few variables in traditional models can be alleviated.Finally,the following conclusions are obtained:First,the monetary policy in China could manage the economy and preserve financial stability as expected.Specifically,loose monetary policy alone would significantly reduce systematic financial risk,promote economic growth,and increase CPI/PPI.Tight monetary policy alone would significantly reduce systematic financial risk,inhibit economic growth,and reduce CPI/PPI.Secondly,the macro-prudential policy in China should be improved.The results show that the macro-prudential policy alone has no significant impact on the change of systematic financial risk,economic growth and CPI/PPI.Lastly,It is found that when monetary policy and macro-prudential policy work together,the monetary policy's effect on SRISK,CPI and PPI would dominate the effect of macro-prudential policy,but tight macro-prudential policy would offset the effect of tight monetary policy on economic growth.And the volatilities of the effects are larger than those with singe policy.