A Conductive Measure of Chinese Monetary Policy
- Jan 10
- 1 min read
[with Refet Gürkaynak and Mahmut İpek]
We identify monetary policy shocks by the People’s Bank of China (PBoC) using high-frequency intraday movements in copper futures traded on the London Metal Exchange. Leveraging the strong link between copper prices and Chinese economic activity, we construct a novel market-based measure of unexpected monetary policy news around PBoC announcements. An event-study framework quantifies the immediate market response, while a structural VAR traces the dynamic domestic and international effects of identified shocks. We find that contractionary PBoC shocks significantly tighten Chinese financial conditions and reduce prices and real activity, with sizable spillovers to global commodity markets and international asset prices. Chinese monetary policy influences headline inflation in the United States and the euro area, with negligible output effects.
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