Dynamics of monetary policy regimes in China under rising global uncertainty: a time-varying approach

This paper studies how China’s monetary policy has responded to global uncertainty under different policy regimes. Using a time-varying parameter VAR with stochastic volatility (TVP-VAR-SV) and monthly data from 2002–2020, the analysis identifies regime dependence. In the 2000s, uncertainty shocks generated sharp declines in output and inflation and were accompanied by accommodative policy easing. Under the 2010s “new normal,” both real and policy responses became smaller and more stable. Monetary adjustments are more closely related to inflation overshooting than to output deviations, indicating a stronger forward-looking orientation toward inflation stabilization. These results suggest that the evolution of China’s monetary framework has increased its resilience to external uncertainty. The main findings are robust across alternative policy instruments and remain unchanged when the exchange rate is incorporated into the analysis.