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China's monetary policy: Quantity versus price rules

  • Zhang, Wenlang
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    Two monetary policy rules, the money supply (quantity) rule and interest rate (price) rule, are explored for China in a dynamic stochastic general equilibrium model. The empirical results seem to indicate that the price rule is likely to be more effective in managing the macroeconomy than the quantity rule, favoring the government's intention of liberalizing interest rates and making a more active use of the price instrument. Moreover, the economy would have experienced less fluctuations had interest rate responded more aggressively to inflation.

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    File URL: http://www.sciencedirect.com/science/article/B6X4M-4THC196-1/2/932da513871c29f90b17cfd09a5d5359
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    Article provided by Elsevier in its journal Journal of Macroeconomics.

    Volume (Year): 31 (2009)
    Issue (Month): 3 (September)
    Pages: 473-484

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    Handle: RePEc:eee:jmacro:v:31:y:2009:i:3:p:473-484
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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    1. John B. Taylor, 1998. "An Historical Analysis of Monetary Policy Rules," NBER Working Papers 6768, National Bureau of Economic Research, Inc.
    2. Sbordone, Argia M, 2006. "U.S. Wage and Price Dynamics: A Limited-Information Approach," MPRA Paper 811, University Library of Munich, Germany.
    3. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
    4. Bernard Laurens & Rodolfo Maino, 2007. "China; Strengthening Monetary Policy Implementation," IMF Working Papers 07/14, International Monetary Fund.
    5. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    6. 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.
    7. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September.
    8. Dong He & Wenlang Zhang & Jimmy Shek, 2006. "How Efficient Has Been China's Investment? Empirical Evidence from National and Provincial Data," Working Papers 0619, Hong Kong Monetary Authority.
    9. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, June.
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