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Monetary policy rules under a fixed exchange rate regime: empirical evidence from China

Listed author(s):
  • Shengzu Wang
  • Jagdish Handa

This article uses an open economy model to estimate, using cointegration and error-correction analysis, China's monetary policy reaction function for the period 1993 to 2003. Alternative inflation-forecast-based (IFB) policy Taylor-type rules for the interest rate are examined and their parameters are estimated. The empirical results support the hypothesis that the central bank of China follows a Taylor-type rule for the interest rate, with the aim of inflation targeting and output smoothing.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100600749279
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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 17 (2007)
Issue (Month): 12 ()
Pages: 941-950

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Handle: RePEc:taf:apfiec:v:17:y:2007:i:12:p:941-950
DOI: 10.1080/09603100600749279
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  1. McCallum, Bennett T. & Nelson, Edward, 1999. "Nominal income targeting in an open-economy optimizing model," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 553-578, June.
  2. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters,in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
  3. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
  4. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
  5. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  6. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
  7. Richard H. Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  8. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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