Is monetary policy effective in China? : the link between intermediate targets and ultimate goals

Windsor, Callan. (2009). Is monetary policy effective in China? : the link between intermediate targets and ultimate goals Honours Thesis, School of Economics, The University of Queensland.

       
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Author Windsor, Callan.
Thesis Title Is monetary policy effective in China? : the link between intermediate targets and ultimate goals
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2009-01-01
Thesis type Honours Thesis
Total pages 162
Language eng
Subjects 14 Economics
Formatted abstract
Since the opening-up of the Chinese economy in 1978, the country has coupled price stability with consistently high levels of economic growth. While the dual-track price system might have acted to moderate open inflation in the early stages of reform, by the 1990s the majority of prices have been market determined. The productive capacity of the economy has increased significantly during the reform period offsetting inflationary pressure associated with increasing aggregate demand – but nonetheless a role for monetary policy in keeping prices stable cannot be discounted. To date, the narrative surrounding monetary policy effectiveness in China has focused on numerous operational shortcomings, such as the perceived inability of Chinese authorities to pursue an independent monetary policy, while simultaneously having fixed exchange rates and a porous capital account. This research moves beyond this descriptive narrative by firmly grounding itself the theoretical principle of the Phillips curve and empirically testing monetary policy effectiveness in a simulated real-time out-of-sample forecasting exercise. In the 1980s monetary policy in China began to premise its operation on 'intermediate' monetary targets, presupposing a reliably exploitable relationship between money growth and future inflation. This thesis therefore examines the effectiveness of monetary policy in China by simulating in real-time the predictive capacity of monetary growth for future inflation. It shows that changes in the money supply does contain statistically significant information for future inflation, but highlights that the practical extent of this information is limited.

Document type: Thesis
Collection: UQ Theses (non-RHD) - UQ staff and students only
 
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Created: Tue, 30 Nov 2010, 20:10:08 EST by Muhammad Noman Ali on behalf of The University of Queensland Library