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Fiscal Policy, Monetary Targets, and the Price Level in a Centrally Planned Economy: An Application to the Case of China

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  • Feltenstein, Andrew
  • Farhadian, Ziba

Abstract

This paper presents a planned-economy monetary model of China. A money supply equation links changes in broad money to government transactions evaluated at official prices. The demand for real money balances by consumers equals the nominal demand for money deflated by an unobserved true price index. The model explains money demand as the divergence between the then official and true price indices. Changes in the money supply are explained by government transactions, while money demand is explained by real income and the anticipated true rate of inflation. The true rate of inflation is 2.5 times the official rate. Copyright 1987 by Ohio State University Press.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 19 (1987)
Issue (Month): 2 (May)
Pages: 137-56

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Handle: RePEc:mcb:jmoncb:v:19:y:1987:i:2:p:137-56

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Portes, Richard & Santorum, Anita, 1987. "Money and the consumption goods market in China," Journal of Comparative Economics, Elsevier, vol. 11(3), pages 354-371, September.
  2. Chhibber, Ajay, 1991. "Africa's rising inflation : causes, consequences, and cures," Policy Research Working Paper Series 577, The World Bank.
  3. Mookerjee, Rajen & Peebles, Gavin, 1998. "Endogenous money in China: Evidence and insights on recent policies," Journal of Asian Economics, Elsevier, vol. 9(1), pages 139-158.
  4. Kui-Wai Li, 1997. "Money and monetization in China's economic reform," Applied Economics, Taylor & Francis Journals, vol. 29(9), pages 1139-1146.
  5. Ying Wu, 2010. "Exchange Rates and Prices under Processing Trade: A Macroeconomic Analysis," Atlantic Economic Journal, International Atlantic Economic Society, vol. 38(3), pages 345-357, September.
  6. Fung, Michael K. Y. & Ho, Wai-Ming & Zhu, Lijing, 2000. "Stagflationary effect of government bond financing in the transforming Chinese economy: a general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 61(1), pages 111-135, February.
  7. Gary Wong & Qiao Yu, 2001. "Inverse Demand Systems for Composite Liquid Assets: Evidence from China," School of Economics and Finance Discussion Papers and Working Papers Series 097, School of Economics and Finance, Queensland University of Technology.
  8. Ge Wu, 2009. "Broad Money Demand and Asset Substitution in China," IMF Working Papers 09/131, International Monetary Fund.
  9. Austin, Darran & Ward, Bert & Dalziel, Paul, 2007. "The demand for money in China 1987-2004: A non-linear modelling approach," China Economic Review, Elsevier, vol. 18(2), pages 190-204.
  10. Delatte, Anne-Laure & Fouquau, Julien & Holz, Carsten A., 2011. "Explaining money demand in China during the transition from a centrally planned to a market-based monetary system," BOFIT Discussion Papers 27/2011, Bank of Finland, Institute for Economies in Transition.
  11. Dixon, Huw David, 1993. "Macroeconomic Equilibrium and Reform in a Transitional Economy," CEPR Discussion Papers 758, C.E.P.R. Discussion Papers.
  12. Mohsen Bahmani-Oskooee & Yongqing Wang, 2007. "How Stable Is The Demand For Money In China?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 32(1), pages 21-33, June.

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