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Time Series Cointegration Model for Perspective of the Effectiveness of Window Guidance of China

Weiguo Xiao, Bing Shao, Ying-nan Fu

Abstract



The paper investigates the impact of window guidance and the role of credits in China. Two models are used for money demand and credit supply to plot econometric estimations during the time period of 1998 to 2009. Moreover, narrative approach is applied to discuss window guidance practice in post-crisis era as further evidence. Within such structural framework, the main findings are lying in four aspects. First, window guidance is effective in China and credits are essential in monetary transmission. Second, in post-crisis period, window guidance is used more frequent and obvious. Third, specific political system with Chinese characteristic is the main cause of window guidance effectiveness. Special financing structure and multi-cooperation mechanism are also guarantees the smooth conduction of window guidance. Last, with further innovation and acceleration in financial and macroeconomic development, window guidance may be substituted by other price-based monetary instruments.

Keywords


Window guidance, monetary policy, transmission channel, credit control, effectiveness.

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