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Monetary Policy and Credit in China: A Theoretical Analysis

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  • Dixon, Huw David

Abstract

A three-sector macromodel of China’s 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 weakness of credit control and interest rate variation as anti-inflationary tools. In contrast, the hardening of SOEs’ budget constraints is an effective device. The existence of credit and currency controls tends to make devaluation contractionary. Furthermore, because of general equilibrium repercussions, policies that boost industrial exports tend to reduce welfare in rural areas, where poverty is concentrated.

Suggested Citation

  • Dixon, Huw David, 1998. "Monetary Policy and Credit in China: A Theoretical Analysis," CEPR Discussion Papers 1906, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1906
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    Cited by:

    1. Meixing Dai, 2006. "Inflation-targeting under a Managed Exchange Rate: the Case of the Chinese Central Bank," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 4(3), pages 199-219.
    2. Sushanta K. Mallick, 2014. "Disentangling the Poverty Effects of Sectoral Output, Prices, and Policies in India," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 773-801, December.
    3. Dickinson, David & Liu, Jia, 2007. "The real effects of monetary policy in China: An empirical analysis," China Economic Review, Elsevier, vol. 18(1), pages 87-111.
    4. Liu, Guanchun & Liu, Yuanyuan & Zhang, Chengsi, 2021. "Human capital in the financial sector and corporate debt maturity," China Economic Review, Elsevier, vol. 69(C).
    5. Phylaktis, Kate & Girardin, Eric, 2001. "Foreign exchange markets in transition economies: China," Journal of Development Economics, Elsevier, vol. 64(1), pages 215-235, February.
    6. Yin Zhang & Guanghua Wan, 2004. "Output and Price Fluctuations in China's Reform Years: What Role did Money Play?," WIDER Working Paper Series RP2004-56, World Institute for Development Economic Research (UNU-WIDER).
    7. Yan, Isabel K. & Kakkar, Vikas, 2010. "The equilibrium real exchange rate of China: a productivity approach," MPRA Paper 35229, University Library of Munich, Germany.
    8. Yu Hsing & Wen-Jen Hsieh, 2009. "Currency appreciation, rising financial asset values, and output fluctuations in China," Applied Economics Letters, Taylor & Francis Journals, vol. 16(8), pages 853-857.

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    More about this item

    Keywords

    China; Credit; Macroeconomic; Money;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform

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