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McCallum rule and Chinese monetary policy

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Author Info

  • Mehrotra, Aaron

    ()
    (BOFIT)

  • Koivu, Tuuli

    ()
    (BOFIT)

  • Nuutilainen, Riikka

    (BOFIT)

Abstract

This paper evaluates the usefulness of a McCallum monetary policy rule based on money supply for maintaining price stability in mainland China. We examine whether excess money relative to rulebased values provides information that improves the forecasting of price developments. The results suggest that our monetary variable helps in predicting both consumer and corporate goods price inflation, but the results for consumer prices depend on the forecasting period. Nevertheless, growth of the Chinese monetary base has tracked the McCallum rule quite closely. Moreover, results using a structural vector autoregression suggest that our measure of excess money supply could be used to identify monetary policy shocks in the Chinese economy.

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File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/dp1508.pdf
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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 15/2008.

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Length: 29 pages
Date of creation: 21 Nov 2008
Date of revision:
Handle: RePEc:hhs:bofitp:2008_015

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Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
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Web page: http://www.suomenpankki.fi/bofit_en/
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Keywords: McCallum rule; monetary policy; China;

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References

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  1. Banerjee, Anindya & Marcellino, Massimiliano, 2006. "Are there any reliable leading indicators for US inflation and GDP growth?," International Journal of Forecasting, Elsevier, vol. 22(1), pages 137-151.
  2. 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.
  3. Massimiliano Marcellino & James H. Stock & Mark W. Watson, . "Macroeconomic Forecasting in the Euro Area: Country Specific versus Area-Wide Information," Working Papers 201, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  5. Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
  6. Mehrotra, Aaron, 2005. "Exchange and interest rate channels during a deflationary era - Evidence from Japan, Hong Kong and China," BOFIT Discussion Papers 17/2005, Bank of Finland, Institute for Economies in Transition.
  7. Ben S. Bernanke & Ilian Mihov, 1996. "What Does the Bundesbank Target?," NBER Working Papers 5764, National Bureau of Economic Research, Inc.
  8. Mehrotra , Aaron & Sánchez-Fung, José R., 2008. "Forecasting Inflation in China," BOFIT Discussion Papers 2/2008, Bank of Finland, Institute for Economies in Transition.
  9. Burdekin, Richard C.K. & Siklos, Pierre L., 2008. "What has driven Chinese monetary policy since 1990? Investigating the People's bank's policy rule," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 847-859, September.
  10. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766, September.
  11. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  12. Goodhart, Charles & Boris Hofmann, 2002. "Asset Prices and the Conduct of Monetary Policy," Royal Economic Society Annual Conference 2002 88, Royal Economic Society.
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Cited by:
  1. Pang, Iris Ai Jao, 2010. "Comparisons of different monetary policies in China with yield curve information," MPRA Paper 32494, University Library of Munich, Germany.
  2. Muneesh Kapur & Michael Debabrata Patra, 2012. "Alternative Monetary Policy Rules for India," IMF Working Papers 12/118, International Monetary Fund.
  3. International Monetary Fund, 2009. "What Drives China's Interbank Market?," IMF Working Papers 09/189, International Monetary Fund.
  4. Cernadas, Luis & Aldazosa, René, 2011. "Estimación de una Función de Reacción para la Política Monetaria en Bolivia
    [Estimating a Monetary Policy Reaction Function for Bolivia]
    ," MPRA Paper 40592, University Library of Munich, Germany.
  5. Nathan Porter & TengTeng Xu, 2013. "Money Market Rates and Retail Interest Regulation in China: The Disconnect between Interbank and Retail Credit Conditions," Working Papers 13-20, Bank of Canada.
  6. Volz, Ulrich & Reade, J. James, 2011. "Chinese Monetary Policy and the Dollar Peg," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48740, Verein für Socialpolitik / German Economic Association.
  7. International Monetary Fund, 2010. "Price Dynamics in China," IMF Working Papers 10/221, International Monetary Fund.
  8. Shujie Yao & Dan Luo & Lixia Loh, . "On China’s Monetary Policy and Asset Prices," Discussion Papers 11/04, University of Nottingham, GEP.
  9. Sánchez, Marcelo, 2010. "Modelling anti-inflationary monetary targeting: with an application to Romania," Working Paper Series 1186, European Central Bank.

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