Monetary Policy and Credit in China: A Theoretical Analysis

CEPR Discussion Paper No. 1906

Posted: 6 Dec 1998

See all articles by John Bennett

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)

Huw David Dixon

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

Multiple version iconThere are 2 versions of this paper

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 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.

JEL Classification: O11, O20, P21

Suggested Citation

Bennett, John and Dixon, Huw David, Monetary Policy and Credit in China: A Theoretical Analysis (June 1998). CEPR Discussion Paper No. 1906. Available at SSRN: https://ssrn.com/abstract=141808

John Bennett (Contact Author)

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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Huw David Dixon

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

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