Fiscal Policy, Monetary Targets, and the Price Level in a Centrally Planned Economy: An Application to the Case of China

Abstract:     
A key task of government policy makers is to determine suitable targets for the macroeconomic variables under their control. In this paper we demonstrate how, in the case of China, the use of official price indices can, with standard estimation procedures, cause these targets to be seriously misspecified. In developing a technique for correctly determining the price level and money supply in a planned economy of this type, we shall also obtain an estimate of the degree to which repressed inflation has exsted in China during the time period of our study, 1954-83.

Keywords: China, price level, repressed inflation

JEL Classification: E31, P22

Accepted Paper Series