Monetary policy rules under a fixed exchange rate regime: empirical evidence from China

Shengzu Wang and Jagdish Handa

Applied Financial Economics, 2007, vol. 17, issue 12, 941-950

Abstract: This article uses an open economy model to estimate, using cointegration and error-correction analysis, China's monetary policy reaction function for the period 1993 to 2003. Alternative inflation-forecast-based (IFB) policy Taylor-type rules for the interest rate are examined and their parameters are estimated. The empirical results support the hypothesis that the central bank of China follows a Taylor-type rule for the interest rate, with the aim of inflation targeting and output smoothing.

Date: 2007
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DOI: 10.1080/09603100600749279

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