Analysing the evolving effectiveness of monetary policy instruments in China: insights from the TVP-SV-MF-bfavar framework

The application of monetary policy rules requires careful consideration across different macroeconomic stages. As the largest developing nation, China has undergone significant economic reforms over the past few decades, providing valuable insights into the effectiveness of various monetary policy rules at different stages of development. This study introduces an innovative research framework, the TVP-SV-MF-BFAVAR model, and employs mixed-frequency data (quarterly, monthly, daily) spanning 20 years to construct relevant proxy indices. It empirically examines the evolving trends in the effectiveness of price-based and quantity-based monetary policy rules in China. The findings indicate that as the economy matures and interest rate marketization progresses, the effectiveness of price-based monetary policy has improved, while quantity-based measures remain reliable policy instruments. Moreover, the effectiveness of monetary policy rules exhibits distinct time-varying characteristics in response to macroeconomic fluctuations, suggesting the need for policy adjustments across different economic stages. Developing nations should actively promote interest rate marketization reforms to foster an enabling environment for the effective implementation of monetary policy.