Does Monetary Policy Matter in China? (2009)

Undergraduate: Gregory Howard

Faculty Advisor: Richard Froyen
Department: Economics

---

This paper empirically models the effectiveness of the monetary transmission mechanism in post-1996 China. A number of reforms demonstrate the government’s commitment to effective monetary policy, but limitations still exist within the financial system. Using a vector autoregression, this paper determines changes to the discount rate are effective at adjusting inflation rates and industrial output growth in the intended directions. However, the effects of monetary policy are small compared to other factors affecting the Chinese economy. The current system allows for effective monetary policy, but more reforms could give it a greater impact.