Monetary policy in China: High-frequency shocks and the signaling effects

Abstract

This paper constructs high-frequency monetary policy shocks for China using intra-day government bond futures price changes around policy announcements. Exploiting the PBC’s unique announcement protocol (2017–2019), we isolate exogenous policy surprises and trace their dynamic effects. Policy surprises have transient impacts on interbank markets but induce persistent adjustments in broader financial markets and real outcomes, indicating transmission through a signaling channel. Further decomposition reveals a crucial asymmetry: pure policy shocks and policy stance changes are persistently contractionary while shocks conveying the central bank’s information are modestly expansionary. Our findings show that overall policy impact reflects competing signals and provide a framework for identifying central bank communication’s dual role in signaling both policy stance and economic outlook in emerging markets with evolving price-based regimes.