Measuring China's monetary policy uncertainty and its impact on the real economy

This paper proposes a measure of China's monetary policy uncertainty (MPU) based on a Bayesian MCMC estimation procedure, investigates the economic impact of MPU, and outlines the impact channels. Empirical findings suggest that MPU depresses China's economy via higher credit risk and lower economic growth. Moreover, the decrease in output is amplified and made more persistent when the economy is simultaneously exposed to higher credit risk. Because China has experienced massive credit expansion over the past decades, the economy is currently more vulnerable to the increase in MPU than it ever was.