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John Fernald
Professor of Economics
Keywords
Measuring China's Economy; Dynamic Factor Model; Factor-Augmented VAR; Monetary Policy
Journal Article
The authors use a broad set of Chinese economic indicators and a dynamic factor model framework to estimate Chinese economic activity and inflation as latent variables. The authors incorporate these latent variables into a factor-augmented vector autoregression (FAVAR) to estimate the effects of Chinese monetary policy on the Chinese economy. A FAVAR approach is particularly well-suited to this analysis due to concerns about Chinese data quality, a lack of a long history for many series, and the rapid institutional and structural changes that China has undergone.