Macro Regime and Economic Growth in China
AbstractIn this paper, we investigate the relationship between Chinese macroeconomic policy and economic growth, and examine how the choice of macroeconomic regime affects economic performance in China. An open-economy model is developed for this purpose. It is a three-sector “almost small" open-economy macroeconomic model, with asset markets and forward-looking agents. This open-economy model is then adopted to analyse the implications of both domestic and external growth shocks to the Chinese economy under two alternative macroeconomic policy regimes. These policy regimes have two extreme assumptions on the exchange rate, with differing degrees of financial capital mobility. The simulation results show that greater flexibility in the exchange rate regime allows the central bank to conduct independent monetary policy in the Chinese economy, the benefit from which increases as financial capital becomes more internationally mobile. Most growth shocks cause an expansion in the real GDP level, and there is a deflation in the price level and depreciation in the real exchange rate when the economy operates a floating exchange rate regime with high financial capital mobility. Overall, the expansionary effects in this macroeconomic environment will be beneficial to the Chinese economy.
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Bibliographic InfoPaper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c012_015.
Length: 28 pages
Date of creation: Jun 2007
Date of revision:
Macroeconomics; Economic Growth; Monetary Policy; Exchange Rate; Capital Mobility; Chinese Economy; Computable General Equilibrium (CGE) Modelling;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-27 (All new papers)
- NEP-CMP-2007-08-27 (Computational Economics)
- NEP-CNA-2007-08-27 (China)
- NEP-DEV-2007-08-27 (Development)
- NEP-MAC-2007-08-27 (Macroeconomics)
- NEP-TRA-2007-08-27 (Transition Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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