Consumption–investment comovement and the dynamic impact of monetary policy uncertainty in China

China's consumption weakly or negatively correlates with investment. We argue that monetary policy uncertainty (MPU) shock might partly explain this negative comovement. An identified shock to MPU in the structural vector autoregression (SVAR) model raises consumption but lowers investment and output, and the heavy industry sector suffers more adverse impacts than the light industry. We develop a multisector dynamic stochastic general equilibrium model to capture negative comovement by incorporating collateral constraints and real balance. The simulation responses replicate the empirical results, indicating that an increase in MPU reduces the attractiveness of loans (risky assets) and encourages agents to hold more liquidity and increase consumption. The liquidity premium is key to generating negative comovement, even in the absence of sticky prices, and differences in credit constraints or capital share could enhance negative comovement. Our findings have broad implications for China's business cycles and the theory of MPU.