The transition of China's monetary policy regime: Before and after the four trillion RMB stimulus

Abstract This paper studies the monetary policy of China in a flexible time varying parameter vector autoregression model with stochastic volatility, with a focus on the monetary policy regime change around 2009 when the 4 trillion RMB stimulus started. We find that China has been transiting from targeting money quantity to targeting interest rate since 2009. The interest rate policy instrument played a bigger role in the central bank's monetary policy toolbox. We check an alternative identification strategy and a couple of different model settings to show the robustness of this conclusion.