Macro Regime and Economic Growth in China
In 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.
|Date of creation:||Jun 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Niels Bohrs Vej 9, 6700 Esbjerg|
Phone: +45 6550 2233
Fax: +45 6550 1090
Web page: http://degit.sam.sdu.dk/
More information through EDIRC
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.:
- Rod Tyers & William Coleman, 2005. "Beyond Brigden: Australia’s Pre-War Manufacturing Tariffs, Real Wages and Economic Size," ANU Working Papers in Economics and Econometrics 2005-456, Australian National University, College of Business and Economics, School of Economics.
- Harris, Richard, 1984.
"Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition,"
American Economic Review,
American Economic Association, vol. 74(5), pages 1016-32, December.
- Richard Harris, 1983. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," Working Papers 524, Queen's University, Department of Economics.
- Ivan Roberts & Rod Tyers, 2003. "China's Exchange Rate Policy: The Case for Greater Flexibility," Asian Economic Journal, East Asian Economic Association, vol. 17(2), pages 155-184, 06.
- Lucy Rees & Rod Tyers, 2004. "On the Robustness of Short Run Gains from Trade Reform," CEPR Discussion Papers 474, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- Gregory C. Chow, 2004. "Economic Reform and Growth in China," Annals of Economics and Finance, Society for AEF, vol. 5(1), pages 127-152, May.
- Rees, Lucy & Tyers, Rod, 2004. "Trade reform in the short run: China's WTO accession," Journal of Asian Economics, Elsevier, vol. 15(1), pages 1-31, February.
When requesting a correction, please mention this item's handle: RePEc:deg:conpap:c012_015. 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: (Jan Pedersen)
If references are entirely missing, you can add them using this form.