An Empirical Analysis of the Central Bank of China's Monetary Policy and the Impact of its Communications on Market Interest Rates, Liquidity and Credit

Abstract

As one of the largest world's economies, China’s economy plays an important role at regional and global levels. In this context, with the fast opening steps of the Chinese economy to international markets, the Chinese Central Bank (PBC or PBOC) has adjusted its mechanisms to the needs of local and international economies. Chinese monetary policy is designed to keep prices and economic growth stable and to ensure the country’s economic development. The Chinese Central Bank has a significant influence over Chinese interest rates, interbank rates, and changes in liquidity and credit. The main goal of this research paper is to describe the role of the Chinese Central Bank in delivering Chinese monetary policy and its changes over the past few years. Our research paper is dedicated to verifying how the Chinese Central Bank's press releases are useful indicators for the future trend of market interest rates after constructing a numerical index representative of expansive or restrictive net signals contained in any of the PBC Communications examined. An empirical analysis over Chinese Monetary Policy Communications (Reports) is included in this research paper, presenting how the Central Bank of China is implementing its monetary policy in order to influence the development of its economic growth through its market interest rates, liquidity and credit movement.