Abstract:
The information set of The People's Bank of China (PBC) remains a secret even today. Using survey data in China from 2001Q1 to 2014Q4, this paper investigates the impact of inflation expectations of households and professionals on monetary policy with forward-looking monetary reaction functions. The empirical results suggest that central bank of China does react to expectations, especially to those of professionals. Central bank seems to hold a discretionary policy: when facing with increasing expected inflation rate,central bank will tighten money supply and vice versa. From the comparison of central bank's reactions to different agents, we conclude that the information set of central bank in China is quite close to those of State Information Center and BOC International Holdings Limited.
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