Regional effects of China’s monetary policy during the economic transition period: Based on China’s city classification system under the new normal

• Published in: PloS one Vol. 18; no. 9; p. e0291317
• Main Authors: Tang, Lingyu, Ai, Guoju, Cai, Zushun
• Format: Journal Article
• Language: English
• Published: San Francisco Public Library of Science 13.09.2023; Public Library of Science (PLoS)
• Subjects: Analysis; Autoregressive models; Cities; Classification; Comparative analysis; Earth Sciences; Econometrics; Economic analysis; Economic aspects; Economic development; Economic growth; Evaluation; Foreign exchange rates; Impulse response; Interest rates; Monetary policy; People and Places; Quantitative analysis; Regional development; Regions; Response functions; Social Sciences; Urban areas; China; United States > US
• ISSN: 1932-6203; 1932-6203
• DOI: 10.1371/journal.pone.0291317

We analyse the regional effects of China’s monetary policy during the economic transition period based on the city classification system under the New Normal. Using panel vector autoregressive (PVAR) models, we examine the differences in the influence of a unified monetary policy on four types of Chinese cities: first-tier, quasi-first-tier, second-tier, and third-tier cities, from perspective of economic output. Based on a comparative analysis of the results of impulse response function and variance decomposition, we conclude that whether for quantitative monetary policy or price-based monetary policy, the degree to which economic growth responds to the unified monetary policy varies across the four types of cities in the short and long terms. With reference to China’s economic transition under the New Normal, in the short term, this phenomenon probably relate to the varying degrees of financial marketization among the four city types; in the long run, this phenomenon may be attributed to the difference in the progress of industrial upgrading of these urban areas. Based on the analysis above, we suggest policy implications for Chinese cities based on the structural monetary policy, industrial upgrading, and market-oriented financial sector reforms.