On potential debt monetisation for China’s post-Covid recovery: what can we learn from the past?

Z Cao and Zhirong Ou

Economic Issues Journal Articles, 2021, vol. 26, issue 2, 39-56

Abstract: A measure of the degree of debt monetisation is constructed for its impact on the business cycle, to be studied in a standard VAR model. Debt monetisation is hardly stimulative, as it raises public demand that crowds out almost as much demand from the private sector. However, it generates inflation, presumably because of inflationary expectations. Nevertheless the impact of debt monetisation on business cycle dynamics is trivial, given the low efficiency of the monetary transmission mechanism. Unless policy proposals are for extraordinarily aggressive moves, or they are accompanied by monetary reforms which facilitate monetary transmission, the recent debate on debt monetisation, we argue, possesses more theoretical meaning than practical meaning for China’s post-Covid recovery.

Keywords: Debt monetisation; business cycle; VAR; China (search for similar items in EconPapers)
JEL-codes: E31 E32 E63 H63 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.economicissues.org.uk/Files/2021/EI_Sept2021_cao.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eis:articl:221cao

Access Statistics for this article

More articles in Economic Issues Journal Articles from Economic Issues Contact information at EDIRC.
Bibliographic data for series maintained by Dan Wheatley ().