Effectiveness of Monetary Policy and the Growth of Industrial Sector in China

  • Adebayo Augustine Kutu School of Accounting, Economics & Finance, University of KwaZulu-Natal, Westville Campus
  • Ntokozo Patrick Nzimande School of Accounting, Economics & Finance, University of KwaZulu-Natal, Westville Campus
  • Simiso Msomi School of Accounting, Economics & Finance, University of KwaZulu-Natal, Westville Campus
Keywords: Monetary Policy, industrial sector Growth, ARDL Model

Abstract

China is viewed as the pillar of Emerging Market Economies (EMEs), deems to surpassed United State, and become the topmost industrialized country in the world with the prospects of major shift in the future world power. However, growth rate has slow down since the third quarter of 2014. Through this paper, we aim at investigating the impacts of monetary policy on industrial sector growth, and determine whether the long-run industrial sector growth in China can be foster by the effectiveness of monetary policy. It also examines the interrelationships among the variables employed and determines the steady-state relationships between industrial sector growth and monetary policy. Time-series econometric techniques such as unit roots, ARDL and ECM are employed to monthly data for the year 1994:1 to 2013:12.According to the empirical results derived, the effectiveness of monetary policy significantly affects industrial sector growth and the short-run impact of monetary policy on industrial output production is established.

Downloads

Download data is not yet available.

References

Ali, S., Irum, S. & Ali, A. (2008). Whether Fiscal Stance or Monetary Policy is Effective for Economic Growth in Case of South Asian Countries? The Pakistan Development Review, 3, 791-799. Bernanke, B. S., Boivin, J. & Eliasz, P. (2005). Measuring the effects of monetary policy: a factor-augmented vector autoregressive (FAVAR) approach. The Quarterly Journal of Economics, 120(1), 387-422. Brooks, C. (2002). Introductory Econometrics for Finance Cambridge University Press. United Kingdom. Christiano, L., Eichenbaum, M. & Evans, C. (1996). The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds. The Review of Economics and Statistics, 78(1), 16-34. Chuku, C. (2009). Measuring the effects of monetary policy innovations in Nigeria: A structural vector autoregressive (SVAR) approach. African Journal of Accounting, Economics, Finance and Banking Research, 5(5). Demetriades, P. & Fielding, D. (2012). Information, institutions, and banking sector development in West Africa. Economic Inquiry, 50(3), 739-753. Dong, Z. (2012). Impact of Monetary Policy on Economic Growth in China. Advances in Information Sciences & Service Sciences, 4(16). Dritsakis, N. (2011). Demand for Money in Hungary: An ARDL Approach. Review of Economics and Finance, 5, 1-28. Erik Hjalmarsson & PärÖsterholm, T. (2007). Testing for Cointegration Using the Johansen Methodology when Variables are Near-Integrated. An IMF Working Paper WP/07/141. Fasanya, I. O., Onakoya, A. B. & Agboluaje, M. A. (2013). Does monetary policy influence economic growth in Nigeria? Asian Economic and Financial Review, 3(5), 635. Fernald, J. G., Spiegel, M. M. & Swanson, E. T. (2014). Monetary policy effectiveness in China: Evidence from a FAVAR model. Journal of International Money and Finance, 49, 83-103. Frimpong, P. B. (2012). Population Health and Economic Growth: Panel Cointegration Analysis in Sub-Saharan Africa. Master’s thesis at Lund University. Geiger, M. (2008). Instruments of monetary policy in China and their effectiveness: 1994-2006. UN Discussion Paper Number 187.
Giles, D. (2013). Econometrics Beat: Dave Giles' Blog: ARDL Models - Part I 2.
Gong, M. & Li, W. (2006). The Effectiveness of Monetary Policy in China During 1993-2004. Available online at cmr.xmu.edu.cn/photos/20061220124741307.doc Gujarati, D. (2004). Basic Econometrics, 4th Edition. The McGraw-Hill Companies. Ishibashi, S. (2012). The Segmentation of Loan Interest Rates by Regional Financial Institutions: A Panel Cointegration Analysis. International Review of Business Research Papers, 8(5), 95-110. Katircioglu, S. T. (2009). Revisiting the tourism-led-growth hypothesis for Turkey using the bounds test and Johansen approach for cointegration. Tourism Management, 30(1), 17-20. Kim, S. (1999). Do monetary policy shocks matter in the G-7 countries? Using common identifying assumptions about monetary policy across countries. Journal of international economics, 48(2), 387-412. Kouakou, A. K. (2011). Economic growth and electricity consumption in Cote d'Ivoire: Evidence from time series analysis. Energy Policy, 39(6), 3638-3644. Kutu, A. A. & Ngalawa, H. (2016). Monetary Policy Shocks and Industrial Sector Performance in South Africa. Journal of Economics and Behavioral Studies, 8(3), 26-40. Kutu, A. A., Akinola, G. W. & Nzimande, N. P. (2016). Monetary Policy and Output Growth Forecasting in a SVAR Perspective. International Journal of Economics and Finance, 8(7), 71.
Liao, W. & Tapsoba, S. (2014). China's Monetary Policy and Interest Rate Liberalization: Lessons from International Experiences. IMF Working Paper No. 14/75.
Liu, W., Li, S. R. & Li, S. Y. (2002). Monetary Expansion, Economic Growth and System Innovation of Capital Market. Economic Research, 1, 27-32. López-Villavicencio, A. & Mignon, V. (2011). On the impact of inflation on output growth: Does the level of inflation matter? Journal of Macroeconomics, 33(3), 455-464. Moon, H. R. & Perron, B. (2004). Testing for a unit root in panels with dynamic factors. Journal of econometrics, 122(1), 81-126. Muneer, S. & Rehman, K. U. (2012). Materialization of Behavioral Finance and Behavioral Portfolio Theory: A Brief Review. Journal of Economics and Behavioral Studies, 4(8), 431-435 Muneer, S., Butt, B. Z. & Rehman, K. U. (2011). A Multifactor Model of Banking Industry Stock Returns: An Emerging Market Perspective. Information Management and Business Review, 2(6), 267-275
Nagel, A. & Parker, J. (2003). Empirical macroeconomics: The effects of monetary policy. Gold-Hammer Collaborative Research at Reed College. Available at http://academic.reed.edu/economics/course_pages/341_f06/Monetary_Policy_Chapter.pdf. Narayan, P. K. (2005). The saving and investment nexus for China: evidence from cointegration tests. Applied economics, 37(17), 1979-1990. Naudé, W., Szirmai, A. & Haraguchi, N. (2015). Structural Change and Industrial Development in the BRICS. Published by Oxford University Press, Oxford-USA. Ncube, M. & Ndou, E. (2011). Monetary policy transmission, house prices and consumer spending in South Africa: an SVAR approach. African Development Bank. Working Paper, 133, 1-48. Ngalawa, H. & Viegi, N. (2011). Dynamic effects of monetary policy shocks in Malawi. South African Journal of Economics, 79(3), 224-250. Omolade, A., Ashamu, S. O. & Morakinyo, A. (2013). Monetary Policy and Nigeria’s Economic Growth. IOSR Journal of Economics and Finance (IOSR-JEF), 2, 56-63. Omoniyi, L. G. & Olawale, A. N. (2015). An Application of ARDL Bounds Testing Procedure to the Estimation of Level Relationship between Exchange Rate, Crude Oil Price and Inflation Rate in Nigeria. International Journal of Statistics and Applications, 5(2), 81-90. Ozturk, I. & Acaravci, A. (2011). Electricity consumption and real GDP causality nexus: Evidence from ARDL bounds testing approach for 11 MENA countries. Applied Energy, 88(8), 2885-2892. Ozturk, I. & Acaravci, A. (2013). The long-run and causal analysis of energy, growth, openness and financial development on carbon emissions in Turkey. Energy Economics, 36, 262-267. Pesaran, M. H., Shin, Y. & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326. Ping, X. (2004). The Analysis of China's Monetary Policy in 1998-2002 [J]. Journal of Finance, 8, 001. Precious, C. & Makhetha-Kosi, P. (2014). Impact of Monetary Policy on Economic Growth: A Case Study of South Africa. Mediterranean Journal of Social Sciences, 5(15), 76. Rafindadi, A. A. & Yosuf, Z. (2013). An application of panel ARDL in analyzing the dynamics of financial development and economic growth in 38 Sub-Saharan African continents. In Proceeding-Kuala Lumpur International Business, Economics and Law Conference. Robinson, P. M. & Marinucci, D. (2003). Fractional Cointegration. Time Series with Long Memory, 334. Saibu, M. O. & Apanisile, O. T. (2013). A bound test analysis of the effects of global economic shocks on Nigerian economy: The role of fiscal and monetary policies (1960-2011). Australian Journal of Business and Management Research, 2(12), 58-68. Sari, R., Ewing, B. T. & Soytas, U. (2008). The relationship between disaggregate energy consumption and industrial production in the United States: an ARDL approach. Energy Economics, 30(5), 2302-2313. Sharifi-Renani, H. O. S. E. I. N. (2010). A structural VAR approach of monetary policy in Iran. In International Conference on Applied Economics–ICOAE (p. 631). Sun, R. (2013). Does monetary policy matter in China? A narrative approach. China Economic Review, 26, 56-74. Uhlig, H. (2005). What are the effects of monetary policy on output? Results from an agnostic identification procedure. Journal of Monetary Economics, 52(2), 381-419. Zhou, H. (2015). Effectiveness Study of Chinese Monetary Policy Regulation on Economic Growth and Inflation. In China’s Monetary Policy Regulation and Financial Risk Prevention (pp. 19-32). Springer Berlin Heidelberg.
Published
2017-07-20
How to Cite
Kutu, A. A., Nzimande, N. P., & Msomi, S. (2017). Effectiveness of Monetary Policy and the Growth of Industrial Sector in China. Journal of Economics and Behavioral Studies, 9(3(J), 46-59. https://doi.org/10.22610/jebs.v9i3(J).1745
Section
Research Paper