Economic Fluctuation,Macro Control,and Monetary Policy in the Transitional Chinese Economy

Since 1978, China has experienced four episodes of economic fluctuations, during which the government used macro controls to restore stability. This paper finds that (i) tight monetary policy reinforced by administrative actions checks the economic overheating, (ii) monetary policy affects significantly industrial output, retail sales, and prices, but it has no effect on fixed-asset investment and merchandise imports, (iii) a long-run stable relationship exists between financial variables and economic activity, and (vi) money aggregates outperform bank credits in predicting future changes in activities. The evidence provides ways for the People's Bank of China to improve the effectiveness of monetary policy.J. Comp. Econom.,October 1997,25(2), pp. 180–195. National University of Singapore, 10 Kent Ridge Crescent, Singapore 119260.