Modeling monetary transmission and policy in China

This is an empirical investigation of how monetary policy has been transmitted into the macro economy of China. It forms part of a work on building a macroeconometric model of China. Econometric modeling reveals that the Chinese monetary system follows basically the Polak model with three types of effective monetary policy instruments: interest rates, the required reserve ratio, and a direct quantity control rule of the base money supply. Model simulations show that these instruments are most effective in affecting monetary aggregates and prices but are least effective in affecting the real economy in the long run.