Transmission Efficiency of Monetary Policy under Uncertainty Shocks:Analysis Based on Theoretical and Empirical Evidence
China presents an optimal research setting for investigating the impact of uncertainty shocks on the efficacy of monetary policy transmission.Firstly,as an emerging economy,China has undergone several economic policy reforms,rendering it susceptible to policy uncertainty shocks.Consequently,these shocks may have significant macroeconomic implications throughout the economic cycle.Secondly,China is the second-largest economy and a pivotal player in international trade,and its increasing openness not only subjects its domestic economy to internal uncertainty shocks but also amplifies the spillover effects of international uncertainty,rendering China's macro-uncertainty somewhat distinctive.Thirdly,the predominant reliance of Chinese firms on indirect financing through bank loans,as opposed to equity financing,extends the reach of monetary policy into the real sector.Additionally,while interest rates in most advanced economies have persistently lingered near the zero lower bound in recent years,China's conventional monetary policy retains greater maneuverability due to its room for adjustment.Lastly,since the mid-1990s,China has progressively embraced interest rate deregulation.Despite the full marketization of money market interest rates,there remains an inadequacy in the deregulation of RMB lending and deposit interest rates.This paper undertakes a comprehensive examination of the efficiency of monetary policy transmission in the presence of macro-uncertainty shocks from perspectives of both empirical analysis and theoretical modeling.This paper further investigates how uncertainty magnifies macroeconomic fluctuations through an incomplete channel of monetary policy transmission.In the realm of empirical analysis,we construct China's macro-uncertainty index using data at various economic and financial levels.The empirically efficient SV AR model is then employed to scrutinize the impact of uncertainty shocks on monetary policy transmission and their repercussions on macroeconomic activities.On the theoretical front,the empirical findings are expounded by incorporating the features of the two-track interest rate system and introducing exogenous processes with stochastic volatility into the New Keynesian DSGE models.Our findings indicate that an unexpected surge in macroeconomic uncertainty substantially diminishes aggregate output and the price level.In response to the downturn in output and prices,the monetary authority proactively implements monetary policy adjustments,which is manifested in a reduction in money market interest rates.Moreover,the response of deposit and lending rates in the financial market lags behind that of the money market interest rates,implying a non-smooth transmission of monetary policy interest rates under uncertainty shocks in China.Additionally,the forecast error variance decomposition underscores the significance of macro-uncertainty shocks as a causal factor in economic downturns,contributing to over a quarter of the output forecast variance.The theoretical model,which incorporates the characteristics of the two-track interest rate system and stochastic volatility shocks,provides a more nuanced explanation of the empirical facts and results.Furthermore,the model predicts that the deregulation of implicit interest rates will enhance the efficiency of policy interest rate transmission to financial market rates,thereby substantially mitigating the economic impact of uncertainty shocks.The analysis in this paper yields significant insights.Despite the full marketization of China's money market interest rates,an implicit two-track system persists due to that the benchmark deposit and lending rates published by the People's Bank of China remain pivotal tools for monetary control and interest rate management.Commercial banks,in turn,continue to reference these benchmark rates when pricing their deposits and loans.A crucial recommendation for the future involves the central bank promptly defining the short-term policy target interest rate,stabilizing the spread between this rate and benchmark rates for deposits and loans,and systematically advancing the"two-track and one-track"policy.Gradual implementation of these measures will facilitate the transformation of the monetary price control paradigm,foster deeper interest rate market-oriented reform,and support the sustained and healthy development of China's economy in the new normal.
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