Monetary Policy and Credit in China: A Theoretical Analysis

CEPR Discussion Paper Series Number 1906

Posted: 4 Sep 1998

See all articles by Huw David Dixon

Huw David Dixon

University of York - Department of Economics and Related Studies; CESifo (Center for Economic Studies and Ifo Institute)

John Bennett

Brunel University London - Economics and Finance; Institute for the Study of Labor (IZA); University of Wales, Swansea - School of Business and Economics; Centre for Economic Policy Research (CEPR)

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Date Written: June 1998

Abstract

A three-sector macromodel of China's economy is developed, in which the activity of state-owned enterprises (SOEs) is onstrained 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.

JEL Classification: 011, 020, P21

Suggested Citation

Dixon, Huw David and Bennett, John, Monetary Policy and Credit in China: A Theoretical Analysis (June 1998). CEPR Discussion Paper Series Number 1906. Available at SSRN: https://ssrn.com/abstract=122672

Huw David Dixon (Contact Author)

University of York - Department of Economics and Related Studies ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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John Bennett

Brunel University London - Economics and Finance ( email )

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Institute for the Study of Labor (IZA)

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University of Wales, Swansea - School of Business and Economics ( email )

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Centre for Economic Policy Research (CEPR)

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