October 2020 issue contents
To Guide or Not to Guide? Quantitative Monetary Policy Tools and Macroeconomic Dynamics in China

Hongyi Chen,a,b Michael Funke,c,d Ivan Lozev,e and Andrew Tsangc


This paper discusses the macroeconomic effects of China's quantity-based banking regulatory tool, "window guidance," introduced in 1998. Using an open-economy DSGE model that includes a commercial banking sector, we study the stabilizing effects of this nonstandard quantitative monetary policy tool and the implications of quantity-based versus price-based monetary policy instruments for welfare. The analyses are relevant to the current overhaul of Chinese monetary policy.

JEL Codes: C61, E32, E44, E52.

Full article (PDF, 46 pages, 2,701 kb)

Hong Kong Institute for Monetary and Financial Research
Hong Kong Monetary Authority
Hamburg University
Tallinn University of Technology
European Commission