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Inflation Targeting in China?

  • Shu-ki Tsang

    (Hong Kong Baptist University)

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    This paper looks at the possibility of applying inflation targeting as a policy in China. It argues that despite the appeal of discipline, there is a host of problems concerning the feasibility and optimality of such a policy. Difficulties abound in the transmission mechanisms involving intermediate variables, the reforming and constantly changing institutional setup, uncontrollable price components, regional diversities, as well as the country's multiple objectives in its development strategy. An FCI is proposed instead as a "focus of nominal attention" that may induce behavioural changes in the government agencies and the market participants.

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    File URL: http://www.hkimr.org/uploads/publication/290/ub_full_0_2_29_wp200219_text.pdf
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    Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 192002.

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    Length: 19 pages
    Date of creation: Oct 2002
    Date of revision:
    Handle: RePEc:hkm:wpaper:192002
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    1. von Hagen, Jurgen & Neumann, Manfred J M, 1994. "Real Exchange Rates within and between Currency Areas: How Far Away Is EMU?," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 236-44, May.
    2. Svensson, L.E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Papers 646, Stockholm - International Economic Studies.
    3. Barro, Robert J., 1989. "Interest-rate targeting," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 3-30, January.
    4. 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.
    5. Amato, Jeffery D. & Gerlach, Stefan, 2002. "Inflation targeting in emerging market and transition economies: Lessons after a decade," European Economic Review, Elsevier, vol. 46(4-5), pages 781-790, May.
    6. Bean, Charles R, 1983. "Targeting Nominal Income: An Appraisal," Economic Journal, Royal Economic Society, vol. 93(372), pages 806-19, December.
    7. Miguel A. Savastano & Paul R. Masson & Sunil Sharma, 1997. "The Scope for Inflation Targeting in Developing Countries," IMF Working Papers 97/130, International Monetary Fund.
    8. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
    9. Ronald I. McKinnon, 2001. "After the Crisis, The East Asian Dollar Standard Resurrected: An Interpretation of High Frequency Exchange Rate Pegging," Working Papers 042001, Hong Kong Institute for Monetary Research.
    10. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    11. Pierluigi Balduzzi & Giuseppe Bertola & Silverio Foresi & Leora Klapper, 1997. "Interest Rate Targeting and the Dynamics of Short-Term Rates," NBER Working Papers 5944, National Bureau of Economic Research, Inc.
    12. Artis, Michael J & Mizen, Paul & Kontolemis, Zenon, 1998. "Inflation Targeting: What Can the ECB Learn from the Recent Experience of the Bank of England?," Economic Journal, Royal Economic Society, vol. 108(451), pages 1810-25, November.
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