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ID: 088468

Analysis of Chinese money and prices using a McCallum-type rule / Koivu, Tuuli; Mehrotra , Aaron; Nuutilainen, Riikka

Koivu, Tuuli	Journal Article
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2009.

Summary/Abstract

This paper evaluates the usefulness of a McCallum-type monetary policy rule based on money supply for maintaining price stability in mainland China. We examine whether excess money relative to rule-based values provides information that improves the forecasting of price developments. The results suggest that our monetary variable helps in predicting both consumer and corporate goods price inflation, but the results for consumer prices depend on the forecasting period. Moreover, results using a structural vector autoregression suggest that our measure of excess money supply could be used to identify monetary policy shocks in the Chinese economy.

Key Words

China ; Monetary Policy ; McCallum Rule

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ID: 090800

Has the Chinese economy become more sensitive to interest rates: studying credit demand in China / Koivu, Tuuli

Koivu, Tuuli	Journal Article
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Publication

2009.

Summary/Abstract

Chinese authorities have traditionally relied mainly on administrative and quantitative measures in conducting monetary policy, with interest rates playing a less prominent role. Additional support for this view resides in a number of earlier studies that have found that the impact of interest rates on the real economy has been miniscule. However, taking into account numerous reforms in the financial sector and more widely in the Chinese economy, interest rates may have gained some influence in the last few years. It is important to study the effectiveness of interest rates also in light of future reforms of the monetary policy tools in China. Whereas administrative policy measures were effective in guiding the behaviour of state-owned enterprises, the authorities may need to increase the use of more market-oriented monetary policy tools as the share of the economy in private and foreign ownership grows. We use a vector error correction model to study, within a credit demand framework, whether the impact of interest rates in China has become stronger over the last decade. Our results suggest that loan demand has indeed become more dependent on interest rates, albeit the channel from interest rates to the real economy is still weak.

Key Words

China- Monetary Economics ; Monetary Economics - China ; Economic Condition - China ; Interest Rates - China

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