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Monetary Policy and Credit in China: A Theoretical Analysis

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  • Bennett, John
  • David Dixon, Huw

Abstract

A three-sector macromodel of China’s economy is developed, in which the activity of state-owned enterprises (SOEs) is constrained by the state-imposed credit plan for working capital. Our analysis indicates the weakness of credit control and interest rate variation as anti-inflationary tools. In contrast, the hardening of SOEs’ budget constraints is an effective device. The existence of credit and currency controls tends to make devaluation contractionary. Furthermore, because of general equilibrium repercussions, policies that boost industrial exports tend to reduce welfare in rural areas, where poverty is concentrated.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 23 (2001)
Issue (Month): 2 (April)
Pages: 297-314

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Handle: RePEc:eee:jmacro:v:23:y:2001:i:2:p:297-314

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Web page: http://www.elsevier.com/locate/inca/622617

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References

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  1. Jeffrey D. Sachs & Wing Thye Woo, 1997. "Understanding China's Economic Performance," Harvard Institute of Economic Research Working Papers 1793, Harvard - Institute of Economic Research.
  2. Gao, X. M. & Wailes, Eric J. & Cramer, Gail L., 1996. "Partial Rationing and Chinese Urban Household Food Demand Analysis," Journal of Comparative Economics, Elsevier, vol. 22(1), pages 43-62, February.
  3. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  4. Brada, Josef C & Kutan, Ali M & Zhou, Su, 1993. " China's Exchange Rate and the Balance of Trade," Economic Change and Restructuring, Springer, vol. 26(3), pages 229-42.
  5. Allsopp, Christopher, 1995. "Macroeconomic Control and Reform in China," Oxford Review of Economic Policy, Oxford University Press, vol. 11(4), pages 43-53, Winter.
  6. Laurence Ball & David Romer, 1987. "Real Rigidities and the Non-Neutrality of Money," NBER Working Papers 2476, National Bureau of Economic Research, Inc.
  7. Dixon, Huw David, 1996. "A Macro-Theoretic Model of the Chinese Economy," CEPR Discussion Papers 1370, C.E.P.R. Discussion Papers.
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Cited by:
  1. Meixing Dai, 2006. "Inflation-targeting under a Managed Exchange Rate: the Case of the Chinese Central Bank," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 4(3), pages 199-219.
  2. Zhang, Yin & Wan, Guanghua, 2004. "Output and Price Fluctuations in China's Reform Years: What Role did Money Play?," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Phylaktis, Kate & Girardin, Eric, 2001. "Foreign exchange markets in transition economies: China," Journal of Development Economics, Elsevier, vol. 64(1), pages 215-235, February.
  4. Dickinson, David & Liu, Jia, 2007. "The real effects of monetary policy in China: An empirical analysis," China Economic Review, Elsevier, vol. 18(1), pages 87-111.
  5. Yan, Isabel K. & Kakkar, Vikas, 2010. "The equilibrium real exchange rate of China: a productivity approach," MPRA Paper 35229, University Library of Munich, Germany.

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