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Monetary Policy and Credit in China: a Theoretical Analysis

  • Huw D. Dixon
  • John Bennett

A three-sector macro model of the Chinese economy is developed in which the activity of state-owned enterprises (SOEs) is constrained by the state-imposed credit plan for working capital. Our analysis indicates the weaknesses of credit control and nominal interest rate increases as tools for holding down the price level; but the hardening of SOEs’ budget constraints is found to be an effective device. The existence of credit and currency controls tends to make devaluation contractionary. Because of general equilibrium repercussions, policies that boost industrial exports tend to reduce welfare in the agricultural sector, where poverty is concentrated.

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File URL: http://www.york.ac.uk/media/economics/documents/discussionpapers/1998/9817.pdf
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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 98/17.

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Handle: RePEc:yor:yorken:98/17
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  1. Jeffrey D. Sachs & Wing Thye Woo, . "Understanding China'S Economic Performance," Department of Economics 97-04, California Davis - Department of Economics.
  2. Allsopp, Christopher, 1995. "Macroeconomic Control and Reform in China," Oxford Review of Economic Policy, Oxford University Press, vol. 11(4), pages 43-53, Winter.
  3. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  4. Bennett, John & Dixon, Huw David, 1996. "A Macrotheoretic Model of the Chinese Economy," Journal of Comparative Economics, Elsevier, vol. 22(3), pages 277-294, June.
  5. Gao, X. M. & Wailes, Eric J. & Cramer, Gail L., 1996. "Partial Rationing and Chinese Urban Household Food Demand Analysis," Journal of Comparative Economics, Elsevier, vol. 22(1), pages 43-62, February.
  6. Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 183-203, April.
  7. Brada, Josef C & Kutan, Ali M & Zhou, Su, 1993. " China's Exchange Rate and the Balance of Trade," Economic Change and Restructuring, Springer, vol. 26(3), pages 229-42.
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