Working Paper Series
The Transition to Marked-Based Monetary Policy: What Can China Learn from the European Experience?
() and Jens Forssbęck
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; (follow links to similar papers)
JEL-Codes: E42; E52; F41; (follow links to similar papers)
60 pages, February 6, 2007
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- This paper is published as:
Oxelheim, Lars and Jens Forssbęck, (2007), 'The Transition to Marked-Based Monetary Policy: What Can China Learn from the European Experience?', Journal of Asian Economics, Vol. 18, No. 2, pages 257-283
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