RDP 2019-11: China's Evolving Monetary Policy Framework in International Context 6. Conclusion

A traditional view of monetary policy in China has been that it bears virtually no resemblance to that in advanced economies. But in recent years this assessment has been challenged, partly following indications that the policy framework is becoming more price- than quantity-based. In conducting a holistic appraisal of the monetary policy framework and empirical features of monetary policy transmission, we strike out a middle ground in arguing that the traditional view is indeed becoming obsolete in many respects, but equally, the basis for the proposition that key aspects of monetary policy in China now resemble those in advanced economies remains narrowly focused. This overall assessment holds along each dimension examined in this paper – the institutional framework, the operational framework, the communication framework, and at the empirical level. Moreover, China's preferred model of institutional and economic development is likely to preclude convergence of its policy framework with advanced economy central banks even in the longer term.

There are a number of promising avenues for related future research, four of which we conclude with here. First, analysis of how macroprudential policy in China will be integrated into the monetary policy framework (including how trade-offs are managed) is likely to be of broad-based interest given that in 2017, China's macroprudential policy framework was overhauled, and as part of this realignment the PBC was given a more expansive (lead) role. It now serves as secretariat in the newly established Financial Stability and Development Committee (on which the PBC Governor serves as Vice Chair), and the PBC also recently established a new internal Macroprudential Policy Bureau to monitor and manage financial systemic risks. A second useful avenue for research might relate to the PBC's evolving monetary policy reaction function in light of substantial changes to the economy, current account and interest and exchange rate regimes over recent years. A third possible line of enquiry pertains to explaining China's inflation performance. China's run of generally sound inflation outcomes over the past decade has come about in a very different institutional context, with broad-based policy coordination the centrepiece. Analysis of the underlying causes and wider implications of China's recent period of price stability should offer fertile terrain for researchers. Finally, we also leave comparisons of China's evolving monetary policy framework with other emerging market countries for future research.