Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209168 
Year of Publication: 
2019
Series/Report no.: 
Working Paper No. 925
Publisher: 
Levy Economics Institute of Bard College, Annandale-on-Hudson, NY
Abstract: 
This paper traces the history of China's reform of its monetary policy framework and analyzes its success and problems. In the context of financial marketization and the failure of the quantity-targeting framework, the People's Bank of China transformed its monetary policy framework toward one that targets interest rates. The reform includes two important institutional changes: establishing an interest rate corridor and decreasing the difficulty the Open Market Operations room faces in estimating the market demand for reserves. The new monetary policy framework successfully stabilizes the interbank offered rate. However, this does not mean that the new framework is sufficient. One important problem remaining to be solved is how to manage the effects of fiscal activities on monetary policy operations. This paper analyzes the fiscal effects on reserves in China's Treasury Single Account system. The missing role of the Treasury in monetary policy operations increases the difficulty for the central bank to achieve its interest rate target. A further reform is therefore needed to provide a coordination mechanism between the Treasury and the People's Bank of China.
Subjects: 
China
Monetary Policy Framework
Interest Rate Target
Fiscal Effects on Reserves
JEL: 
E42
E52
E58
P24
Document Type: 
Working Paper

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