McCallum rule and Chinese monetary policy
Koivu, Tuuli; Mehrotra, Aaron; Nuutilainen, Riikka (15.11.2008)
JulkaisusarjaBOFIT Discussion Papers
JulkaisijaBank of Finland
Julkaisun pysyvä osoite onhttps://urn.fi/URN:NBN:fi:bof-201408072115
This paper evaluates the usefulness of a McCallum monetary policy rule based on money supply for maintaining price stability in mainland China. We examine whether excess money relative to rulebased values provides information that improves the forecasting of price developments. The results suggest that our monetary variable helps in predicting both consumer and corporate goods price inflation, but the results for consumer prices depend on the forecasting period. Nevertheless, growth of the Chinese monetary base has tracked the McCallum rule quite closely. Moreover, results using a structural vector autoregression suggest that our measure of excess money supply could be used to identify monetary policy shocks in the Chinese economy
Published in Journal of Chinese Economic and Business Studies. Volume 7, Issue 2, May 2009, pages 219-235 as "An analysis of Chinese money and prices using a McCallum-type rule"