The New Challenges of Inflation and External Imbalances Facing China

Yongding Yu
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Yongding Yu: Institute of World Economics and Politics No. 5 Jianguomenneidajia St. 100732, Beijing China,

Asian Economic Papers, 2008, vol. 7, issue 2, pages 34-50

Abstract: China is facing the threat of inflation, at the same time that the U.S. economy is in trouble. To maintain a sustainable growth rate, China must walk a tightrope. On one hand, China must tighten its monetary policy to bring inflation under control, which will slow down the growth rate of the Chinese economy. On the other hand, China also has to be ready to use expansionary fiscal policy to replace the weakened external demand to prevent its economy from falling into a "growth recession," where the growth rate is below 8 percent, due to the double whammies of monetary tightening and a significant slowdown of the U.S. economy. (c) 2008 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

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