I investigate the data quality issue in studies about the monetary policy by the central bank of China (PBC). The issue is pronounced in emerging economies with a lack of high-quality data. I adjust the data using real-time information to address the abrupt structural changes in China. I consider a variety of potential policy tools. The results imply a substantial discrepancy between policy responses to official and actual macroeconomic indicators. Finally, from a two-sector DSGE model with asymmetric credit access between firms with different productivity, the data quality issue inverts the policy implications in many aspects. The policy response to official indicators suggests the PBC tries to stabilise the economy and reduce credit misallocation, but it actually increases the output...[ Read more ]

I investigate the data quality issue in studies about the monetary policy by the central bank of China (PBC). The issue is pronounced in emerging economies with a lack of high-quality data. I adjust the data using real-time information to address the abrupt structural changes in China. I consider a variety of potential policy tools. The results imply a substantial discrepancy between policy responses to official and actual macroeconomic indicators. Finally, from a two-sector DSGE model with asymmetric credit access between firms with different productivity, the data quality issue inverts the policy implications in many aspects. The policy response to official indicators suggests the PBC tries to stabilise the economy and reduce credit misallocation, but it actually increases the output and consumer welfare.