How Effective is Chinaâ€™s Monetary Policy? An assessment of the link between the growth of monetary aggregates and inflation during the 2000s
The effectiveness of Chinaâ€™s monetary policy hinges on the existence of a robust link between the growth of monetary aggregates and inflation. This paper considers this link during the 2000s using Structural VAR models and simulated out-of-sample forecasting techniques. The results indicate that the link is far from robust. Such findings serve to underscore the importance of institutional reforms that will enable interest rates to play a more prominent role as an instrument of monetary policy.
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