Whose confidence matters in Chinese monetary policy?

Whose confidence matters in Chinese monetary policy-consumers or entrepreneurs? To answer this question, we first conduct a competition test between the two groups and find that the entrepreneurs' confidence plays a much more dominant role than the consumer confidence in the transmission process of monetary policy. In addition, we use counterfactual structural vector autoregression method to isolate and identify the effect of confidence. The empirical results show that the effectiveness of proactive monetary policy will be strikingly reduced if the channel of entrepreneurs' confidence is shut down. Removing the effect of consumer confidence from the system, however, produces little impact on the effectiveness of monetary. These findings are robust to both price-based and quantitative-based policy variables in China.