Impacts of Monetary, Fiscal and Exchange Rate Policies on Output in China: A Var Approach
Applying the VAR model and using the interest rate as a monetary policy variable, we find that in the long run, output in China responds negatively to a shock to the interest rate, the real exchange rate, government debt, or the inflation rate, and it reacts positively to a shock to government deficits or lagged own output. When real M2 is chosen as a monetary policy variable, long-term output in China responds positively to a shock to real M2 or lagged own output, and it reacts negatively to a shock to the real exchange rate, government debt, or government deficits. Its response to a shock to the inflation rate is negative when government debt is used and is positive when government deficits are considered. In the short run, fiscal policy is more important than monetary policy in three out of four cases. In the long run, monetary policy is more influential than fiscal policy in three out of four cases. Therefore, the government may consider conducting monetary and fiscal policies differently in the short run and long run. The government needs to be cautious in pursuing deficit spending as its long-term impacts depend on the monetary variable employed. The policy of maintaining a relatively stable exchange rate is appropriate as the depreciation of the Yuan may hurt the economy in the short run. Copyright Springer 2004
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.:
- Kenneth N. Kuttner & Patricia C. Mosser, 2002. "The monetary transmission mechanism: some answers and further questions," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 15-26.
- Mingwei Yuan & Kalpana Kochhar, 1994. "China'S Imports; An Empirical Analysis Using Johansen'S Cointegration Approach," IMF Working Papers 94/145, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:kap:ecopln:v:37:y:2004:i:2:p:125-139. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.