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Monetary and Fiscal Operations in the People’s Republic of China: An Alternative View of the Options Available

L. Randall Wray and Yolanda Fernandez Lommen
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Yolanda Fernandez Lommen: Asian Development Bank

No 380, ADB Economics Working Paper Series from Asian Development Bank

Abstract: This paper examines the fiscal and monetary policy options available to the People’s Republic of China (PRC) as a sovereign currency-issuing nation operating in a dollar standard world. The paper first summarizes a number of issues facing the PRC, including the possibility of slower growth and a number of domestic imbalances. Then, it analyzes current monetary and fiscal policy formation and examines some policy recommendations that have been advanced to deal with current areas of concern. The paper outlines the sovereign currency approach and uses it to analyze those concerns. Against this background, it is recommended that the central government’s fiscal stance should be gradually relaxed so that local government and corporate budgets can be tightened. By loosening the central government’s budget but tightening local government and corporate budgets at a measured pace, the PRC can avoid depressing growth or sparking excessive inflation.

Keywords: fiscal and monetary policy options; sectoral balances approach; sovereign currency approach; middle-income trap; modern money theory (search for similar items in EconPapers)
JEL-codes: E60 E61 E62 O23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-mon and nep-tra
Date: 2013-10-15
Note: http://www.adb.org/sites/default/files/pub/2013/ewp-380.pdf
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Persistent link: http://EconPapers.repec.org/RePEc:ris:adbewp:0380

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