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China; Strengthening Monetary Policy Implementation

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  • Bernard J Laurens
  • Rodolfo Maino

Abstract

The People's Bank of China (PBC) has made great strides in modernizing its monetary policy frameworks but their effectiveness will diminish as the sophistication of the economy increases. Empirical evidence supports maintaining a reference to money in China's monetary strategy and enhancing the role of interest rates in its conduct. We advocate adoption of an eclectic strategy involving the monitoring of several indicators, and of a short-term interest rate as the operational target. The PBC should be granted discretion to change its policy rate, and there are no technical obstacles for such a move to occur in the near future.

Suggested Citation

  • Bernard J Laurens & Rodolfo Maino, 2007. "China; Strengthening Monetary Policy Implementation," IMF Working Papers 07/14, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/14
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    References listed on IDEAS

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    1. Nicholas R. Lardy, 2005. "Exchange Rate and Monetary Policy in China," Cato Journal, Cato Journal, Cato Institute, vol. 25(1), pages 41-47, Winter.
    2. Marvin Goodfriend & Eswar Prasad, 2009. "A Framework for Independent Monetary Policy in China," Chapters,in: Monetary Policy Frameworks for Emerging Markets, chapter 8 Edward Elgar Publishing.
    3. Richard Podpiera, 2006. "Progress in China’s Banking Sector Reform; Has Bank Behavior Changed?," IMF Working Papers 06/71, International Monetary Fund.
    4. Eswar S Prasad, 2004. "China's Growth and Integration into the World Economy; Prospects and Challenges," IMF Occasional Papers 232, International Monetary Fund.
    5. Bernard J Laurens, 2005. "Monetary Policy Implementation at Different Stages of Market Development," IMF Occasional Papers 244, International Monetary Fund.
    6. Bindseil, Ulrich, 2004. "The operational target of monetary policy and the rise and fall of reserve position doctrine," Working Paper Series 372, European Central Bank.
    7. Eswar S Prasad & Qing Wang & Thomas Rumbaugh, 2005. "Putting the Cart Before the Horse? Capital Account Liberalization and Exchange Rate Flexibility in China," IMF Policy Discussion Papers 05/1, International Monetary Fund.
    8. Bruggeman, Annick & Camba-Méndez, Gonzalo & Fischer, Björn & Sousa, João, 2005. "Structural filters for monetary analysis: the inflationary movements of money in the euro area," Working Paper Series 470, European Central Bank.
    9. Estrella, Arturo & Mishkin, Frederic S., 1997. "Is there a role for monetary aggregates in the conduct of monetary policy?," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 279-304, October.
    10. Marc G Quintyn & Bernard J Laurens & Hassanali Mehran & Tom Nordman, 1996. "Monetary and Exchange System Reforms in China; An Experiment in Gradualism," IMF Occasional Papers 141, International Monetary Fund.
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    More about this item

    Keywords

    Demand for money; China; Central banks and their policies; Economic indicators; Monetary policy; Interest rates; Money demand; Monetary policy instruments; multipliers; inflation; central bank; money market; money supply;

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