| Abstract: | In 2004, the People's Bank of China (PBC) is reported to have abandoned the quantity of money as its intermediate goal and to adopt some elements of the apparatus of inflation targeting, without giving up the managed exchange rate regime for the renminbi (RMB), the Chinese currency. We show in this paper, using a dynamic setting, that partially implementing the apparatus of inflation targeting by the PBC to improve the performance of monetary policy encounters various difficulties from out-of-equilibrium dynamics to macro-economic and financial instability. In this context, some macro-economic measures can be helpful for reducing disequilibrium. Further development of internal monetary and financial markets and assigning balanced weights by the PBC to inflation and output targets are necessary conditions for the regime to be stable. |
