Author(s)

Jing Hua, Shihan Shang and Lu Zhang

Corresponding Author

Jing Hua

ABSTRACT

In this paper, we apply the Vector Autoregression (VAR) model to analyze the impact of the monetary policy on China's economy. We selected the Unemployment rate and GDP as the representatives of the economy and M1 and interest rate as the indicators of monetary policy. The sample period is from Q1 2010 to Q3 2020. Empirical results show that there exists a mutually causal relationship between unemployment and GDP. Compared with an interest rate, M1 can be an efficient way to improve the unemployment rate, while the interest rate is an effective strategy to improve GDP. For policymakers, a loss of GDP in the interim should be considered.

KEYWORDS

Monetary Policy, VAR, Impulse response