Table of contents for The money supply process and monetary policy in China / Yanfen Huang.


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List of Figures                                                                    XI
List of Tables                                                                   XIII
Abbreviations                                                                     XV


1. Introduction                                                                1
 1.1 Background                                                               1
     1.1.1 The increasingly significant role of monetary policy in China's
          macroeconomic management                                             1
     1.1.2 The poor performance of monetary policy                            4
 1.2. Current literature                                                      6
 1.3 The structure of the dissertation                                        7


2 Institutional Conditions of Monetary Policy in China                         9
 2.1 Institutional reform of China's financial sector                         9
     2.1.1 Development of China's financial sector: an overview                9
          2.1.1.1 China's banking system before the economic reform           10
          2.1.1.2 The three stages of the financial sector reform in China    11
          2.1.1.3 The structure of the Chinese banking sector                     16
     2.1.2 The institutional characteristics of the central banking system    19
          2.1.2.1 The PBC's non-independent and non-autonomous feature        19
          2.1.2.2 Poor banking supervision                                        21
     2.1.3 The problems of the banking system                                      22
          2.1.3.1 The dominance of state-ownership and lack of operational
                 independence in the banking sector                               23
          2.1.3.2 Obligations to the SOEs and moral hazard                        24
          2.1.3.3 Lack of competition                                             25
 2.2 Development of China's financial markets                                      26
     2.2.1 The development of capital markets                                      27
          2.2.1.1 The stock markets                                               27
          2.2.1.2 The bond markets                                                29




     2.2.2 The development of money markets                                     34
          2.2.2.1 The interbank money market                                    34
          2.2.2.2 The repurchase market for securities                          38
          2.2.2.3 The commercial bill market                                    39
          2.2.2.4 The foreign exchange market                                   41
     2.2.3. The characteristics of China's financial market development     43
 2.3 Summary                                                                    47


3. Study of the Money Supply Process in the Framework of Monetary Base and
  /Money Multiplier                                                             48
 3.1 The monetary base                                                          49
     3.1.1 The PBC's balance sheet and the monetary base                        49
          3.1.1.1 The PBC's balance sheet                                       49
          3.1.1.2 The monetary base and its components                          50
     3.1.2 Factors that affect the monetary base                                52
          3.1.2.1 Claims on banking institutions (CB)                           53
          3.1.2.2 Net foreign assets (NFA)                                      56
          3.1.2.3 Net claims on government (NCG)                                58
          3.1.2.4 Claims on other sectors (CO)                                  58
 3.2 Monetary base and monetary aggregate: The mechanistic multiplier process  60
     3.2.1 The concept of the money multiplier                                  60
     3.2.2 Factors that affect the money multiplier                             61
          3.2.2.1 Determinants of the ratio of currency to bank deposits (c)  61
          3.2.2.2 Determinants of the excess reserve ratio (r2)                 65
          3.2.2.3 Determinants of the ratio of deposits of other sectors to bank
                 deposits (r3)                                                  66
     3.2.3 Empirical analysis of the stability of the money multiplier      68
          3.2.3.1 The data                                                      69
          3.2.3.2. Unit root test                                               71
          3.2.3.3 The long-run stable relation between the monetary base and the two
                 monetary aggregates Ml and M2                                  73



4. Instruments of Monetary Policy in China                                         80
 4.1 The credit plan                                                               80
     4.1.1 The evolution of the credit plan                                        80
     4.1.2 The formulation and implementation of the credit plan                   83
     4.1.3 The ineffectiveness of the credit plan                                  84
 4.2 Indirect monetary policy instruments and their effectiveness             90
     4.2.1 PBC lending to banking institutions                                     91
          4.2.1.1 The evolution of PBC lending to banking institutions        91
          4.2.1.2 The ineffectiveness of PBC lending to banking institutions  93
     4.2.2 The rediscount policy                                                   96
     4.2.3 The limited role of reserve requirements                                99
          4.2.3.1 The characteristics of the required reserve arrangement     99
          4.2.3.2 The limited role of reserve requirements                       101
     4.2.4 Market-based operations                                                103
          4.2.4.1 The emergence of market-based operations                       103
          4.2.4.2 The minor role of market-based operations                      103
 4.3 Interest rate management in China                                            105
     4.3.1 The evolution of the interest rate system                              105
     4.3.2 General principles of the PBC's interest rate policy                   110
          4.3.2.1 General principles of the PBC's interest rate setting      110
          4.3.2.2 General principles of the PBC's interest rate adjustment   112
     4.3.3 Problems of the current administered interest rate system         113
 4.4 Concluding remarks                                                           116


5. Explanation of the Money Supply Process Using the Credit Market Theory    117
 5.1 The credit market theory of the money supply                                 118
     5.1.1 The macroeconomic market for credit and money                          118
     5.1.2 The market for central bank money                                      123
     5.1.3 The complete model                                                     124
 5.2 Explanation of the money supply process using credit market theory     127
     5.2.1 The behavioural functions of non-banks                                 128
     5.2.2 The behavioural functions of banks                                     133
     5.2.3 The market for central bank money                                     139




      5.2.4 The complete money supply model                                         141
      5.2.5 Effects of the quasi - endogeneity of money supply on monetary policy  145
           5.2.5.1 The PBC's passivity to demand and money multiplier shocks   145
           5.2.5.2 Non-existence of well-functioning monetary transmission
                  mechanisms                                                       148
  5.3 Summary                                                                       151


6. Designing the Strategy and Operating Procedure for Monetary Policy in China  153
  6.1 Intermediate target                                                            154
      6.1.1 Theoretical analysis about various suggested intermediate targets  156
           6.1.1.1 Monetary aggregates as an intermediate target                   156
           6.1.1.2. Interest rates as an intermediate target                       159
           6.1.1.3 Nominal GDP as an intermediate target                           161
           6.1.1.4 Exchange rate as an intermediate target                         162
           6.1.1.5 The concept of inflation targeting                              164
      6.1.2 Choosing the intermediate target in the current Chinese transition period  166
           6.1.2.1 Analysis of inflation targeting in the Chinese transition period  169
           6.1.2.2 Analysis of monetary targeting in the Chinese transition period  172
  6.2 Operating target                                                              175
  6.3 Concluding remarks                                                            181


7. Conclusion and Policy Issues                                                     182
  7.1 Conclusion: Interest rate liberalisation is an essential prerequisite for the
      successful conduct of monetary policy                                         182
  7.2 The necessary preconditions, obstacles and reform tactics in interest rate
      liberalisation                                                                184
  7.3 Some issues for future monetary policy research                               187


 Appendices                                                                          190
 Appendix I: Law of the People's Bank of China                                     190
 Appendix II: The data                                                             199


References                                                                          201





Library of Congress Subject Headings for this publication: Money supply China, Monetary policy China, China Economic conditions 1976-2000