The Ins & Outs of Chinese Monetary Policy Transmission

Using a novel indicator for the People's Bank of China monetary policy stance, we estimate a policy rule that accounts for the dual nature of its price stability mandate---encompassing domestic inflation and the exchange rate---and for the evolution of its operational framework.The "Ins": The domestic transmission follows textbook patterns, with exceptions due to the active management of the renminbi and the financial account.The "Outs": International spillovers are powerful and affect commodity markets, global production and trade.The pass-through to foreign (US) prices is substantial.Financial spillovers are second-order, and mostly derivative from trade spillovers.