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on China |
| By: | Bradley Jones (Reserve Bank of Australia); Joel Bowman (Reserve Bank of Australia) |
| Abstract: | China's monetary policy framework has evolved considerably over the years. However, official descriptions provide limited detail and it generally remains less well understood than befits the world's second largest economy. This paper takes stock of the evolution of monetary policy in China and, by placing these developments in international context, also contributes to the emerging discussion about whether aspects of monetary policy in China are beginning to converge on advanced economy norms. Our main takeaways are as follows. First, on the institutional set-up, we note that the absence of instrument independence and the nature of accountability mechanisms remain substantial points of difference, reflecting China's single-party state system in which the levers of macroeconomic management remain highly coordinated under the State Council. Second, the objectives for monetary policy in China and how they find practical expression in the operational framework continue to have few parallels in advanced economies, although some implementation features (such as the corridor for policy rates) are more familiar as China continues to transition from a quantity- to price-based monetary system. Third, elements of The People's Bank of China's communication framework are broadly evolving along the lines observed elsewhere, with remaining exceptions mostly a result of China's unique institutional arrangements. Fourth, our empirical analysis of monetary policy transmission points to both similarities and differences: while policy rates now have a larger effect than monetary aggregates on output and bond yields, reflecting a Chinese financial system that is becoming more developed (as in advanced economies in the 1970s–1980s), the similar average inflation outcomes observed in China and advanced economies have been generated through different means. In sum, our analysis suggests that while some aspects of monetary policy in China are beginning to resemble those observed in advanced economies, convergence is neither likely nor even desired by the authorities given China's institutional configuration and preferred model of economic development. |
| Keywords: | China; monetary policy; financial markets |
| JEL: | E02 E42 E52 E58 E63 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2019-11&r=all |
| By: | Chu, Angus C.; Furukawa, Yuichi; Kou, Zonglai; Liu, Xueyue |
| Abstract: | This study explores the heterogeneous effects of minimum wage on innovation of different types of firms. Using firm-level data in China, we find that a higher minimum wage is associated with more innovation by importing firms but less innovation by non-importing firms. To interpret these empirical findings, we develop an open-economy R&D-based growth model and find that a higher minimum wage reduces innovation of firms that use domestic inputs but increases innovation of firms that import foreign inputs. Intuitively, when a higher minimum wage reduces employment, importing firms respond by importing more inputs, which have technology spillovers and enhance their innovation. |
| Keywords: | innovation; minimum wage; imports; knowledge spillovers |
| JEL: | E24 F43 O31 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97008&r=all |
| By: | Fang, Lei (Federal Reserve Bank of Atlanta); Herrendorf, Berthold (Arizona State University) |
| Abstract: | We document that the employment share of high-skill-intensive services is much lower in China than in countries with similar gross domestic product (GDP) per capita. We build a model of structural change with goods and low- and high-skill-intensive services to account for this observation. We find that large distortions limit the size of high-skill-intensive services in China. If they were removed, both high-skill-intensive services and GDP per capita would increase considerably. We document a strong presence of state-owned enterprises in high-skill-intensive services and argue that this presence leads to important distortions. |
| Keywords: | mortgage default; foreclosure; externality; policy; vacancy |
| JEL: | O41 O47 O51 |
| Date: | 2019–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2019-21&r=all |
| By: | Cavallo, Alberto (Harvard University); Gopinath, Gita (International Monetary Fund); Neiman, Brent (University of Chicago); Tang, Jenny (Federal Reserve Bank of Boston) |
| Abstract: | We use micro data collected at the border and at retailers to characterize the effects brought by recent changes in US trade policy — particularly the tariffs placed on imports from China — on importers, consumers, and exporters. We start by documenting that the tariffs were almost fully passed through to the total prices paid by importers, suggesting that the tariffs’ incidence has fallen largely on the United States. Since we estimate the response of prices to exchange rates to be far more muted, the recent depreciation of the Chinese renminbi is unlikely to alter this conclusion. Next, using product-level data from several large multinational retailers, we demonstrate that the impact of the tariffs on retail prices is more mixed. Some affected product categories have seen sharp price increases, but the difference between affected and unaffected products is generally quite modest, suggesting that retail margins have fallen. These retailers’ imports increased after the initial announcement of possible tariffs, but before their full implementation, so the intermediate passthrough of tariffs to their prices may not persist. Finally, in contrast to the case of foreign exporters facing US tariffs, we show that US exporters lowered their prices on goods subjected to foreign retaliatory tariffs compared to exports of non-targeted goods. |
| Keywords: | trade policy; tariffs; exchange rate passthrough |
| JEL: | F01 F13 F14 F4 |
| Date: | 2019–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:19-12&r=all |
| By: | Fan, Yi (London School of Economics); Yi, Junjian (National University of Singapore); Zhang, Junsen (Chinese University of Hong Kong) |
| Abstract: | This paper documents an increasing intergenerational income persistence in China since economic reforms were introduced in 1979. The intergenerational income elasticity increases from 0.390 for the 1970–1980 birth cohort to 0.442 for the 1981–1988 birth cohort; this increase is more evident among urban and coastal residents than rural and inland residents. We also explore how changes in intergenerational income persistence is correlated with market reforms, economic development, and policy changes. |
| Keywords: | intergenerational income persistence, economic transition, great gatsby curve |
| JEL: | E24 J62 O15 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12804&r=all |