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AbstractThis paper examines the interdependence of China's policy uncertainty, the global oil market and stock market returns in China. A structural VAR model is estimated that shows that a positive shock to economic policy uncertainty in China has a delayed negative effect on global oil production, real oil prices and real stock market returns. Shocks to oil market‐specific demand significantly raise China's economic policy uncertainty and reduce the real stock market returns. As measured by a spillover index, the interdependence between these variables has been rising since 2003 as China's influence in the oil market has increased. An equivalent spillover index calculated for the US is smaller and has been largely flat over time.

A framework is developed in which inflation biases with different target variables are compared. A nominal growth target measured in consumer prices may yield less stabilization bias than a nominal income growth target. Exchange rate and inflation targets result in less stabilization bias than an income growth target the more important the terms‐of‐trade stabilization. Persistence in output causes excessive stabilization of productivity shocks and of shocks to the terms of trade under discretion. An inflation‐weight conservative central bank is more likely under an inflation target than under an exchange rate target, and less likely under a nominal income growth target.