The Transition to Marked-Based Monetary Policy: What Can China Learn from the European Experience?

Lars Oxelheim and Jens Forssbæck

No 696, Working Paper Series from Research Institute of Industrial Economics

Abstract: We discuss the prospects for Chinese money market development and transition to market-based monetary policy operations based on a comparative historical analysis of the present Chinese situation and the development in 11 European countries from 1979 up to the launch of European Economic and Monetary Union (EMU). Central banks in the latter group typically had an incentive to encourage the formation of efficient benchmark segments in the domestic money markets for the conduct of open market operations as traditional quantity-oriented instruments became increasingly ineffective. China is displaying many of the same symptoms as the European countries in the 1970s and 1980s, including poor monetary transmission due to excess liquidity and conflicts of interest due to unclear priority among multiple policy goals. We conclude that the current Chinese multiple-target monetary policy is counter-productive to efforts to develop an efficient money market that can serve as arena for an effective market-based monetary policy.

Keywords: Monetary Policy Operations; Money Market; China; European Union; Deregulation (search for similar items in EconPapers)
JEL-codes: E42 E52 F41 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2007-02-06
New Economics Papers: this item is included in nep-cna, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Asian Economics, 2007, pages 257-283.

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Journal Article: The transition to market-based monetary policy: What can China learn from the European experience? (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0696

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