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An analysis of Chinese money and prices using a McCallum-type rule

Author

Listed:
  • Tuuli Koivu
  • Aaron Mehrotra
  • Riikka Nuutilainen

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.

Suggested Citation

  • Tuuli Koivu & Aaron Mehrotra & Riikka Nuutilainen, 2009. "An analysis of Chinese money and prices using a McCallum-type rule," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 7(2), pages 219-235.
    • Handle: RePEc:taf:jocebs:v:7:y:2009:i:2:p:219-235
    DOI: 10.1080/14765280902847742
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    References listed on IDEAS

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    1. Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
    2. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766.
    3. Michael Geiger, 2008. "Instruments Of Monetary Policy In China And Their Effectiveness: 1994–2006," UNCTAD Discussion Papers 187, United Nations Conference on Trade and Development.
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    Citations

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    Cited by:

    1. Koivu, Tuuli, 2012. "Monetary policy, asset prices and consumption in China," Economic Systems, Elsevier, vol. 36(2), pages 307-325.
    2. repec:zbw:bofitp:2010_018 is not listed on IDEAS
    3. repec:zbw:bofitp:urn:nbn:fi:bof-201503181119 is not listed on IDEAS
    4. Aaron Mehrotra & José R Sánchez-Fung, 2010. "China's Monetary Policy and the Exchange Rate," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 52(4), pages 497-514, December.
    5. Wan, Jianjun & Lee, Chien-Chiang, 2023. "Corporate investment and the dilemma of the monetary policy: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 106-121.
    6. Aaron Mehrotra & José R Sánchez-Fung, 2010. "China's Monetary Policy and the Exchange Rate," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 52(4), pages 497-514, December.
    7. Nuutilainen, Riikka, 2015. "Contemporary monetary policy in China: A move towards price-based policy?," BOFIT Discussion Papers 10/2015, Bank of Finland, Institute for Economies in Transition.
    8. repec:bof:bofitp:urn:nbn:fi:bof-201503181119 is not listed on IDEAS
    9. Koivu, Tuuli, 2010. "Monetary policy, asset prices and consumption in China," BOFIT Discussion Papers 18/2010, Bank of Finland Institute for Emerging Economies (BOFIT).
    10. Riikka Nuutilainen, 2015. "Contemporary Monetary Policy in China: An Empirical Assessment," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 461-486, August.
    11. Nuutilainen, Riikka, 2015. "Contemporary monetary policy in China: A move towards price-based policy?," BOFIT Discussion Papers 10/2015, Bank of Finland Institute for Emerging Economies (BOFIT).
    12. repec:zbw:bofitp:2010_010 is not listed on IDEAS
    13. Koivu, Tuuli, 2010. "Monetary policy, asset prices and consumption in China," BOFIT Discussion Papers 18/2010, Bank of Finland, Institute for Economies in Transition.
    14. repec:zbw:bofitp:2015_010 is not listed on IDEAS

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