Targets: Why Money and Credit?

  • Michael BeggsEmail author
  • Luke Deer


The People’s Bank of China was not very explicit about its views on the transmission processes of monetary policy in the 2000s, but its statements were oriented around money and credit quantity targets. This contrasted with international ‘new macroeconomic consensus’ policy, which focused on interest rates. We explain why Chinese officials continued to use quantitative targets: mainly as an anchor for tighter policy, rather than any belief in a stable demand-for-money function. Interest rates were not appropriate as an intermediate target because policymakers doubted their influence on investment.


Monetary policy China Central banking Money Credit Targets 


  1. Baharumshah, Ahmad Zubaidi, Siti Hamizah Mohd, and Marial Awou Yol. 2009. “Stock prices and demand for money in China: New evidence.” Journal of International Financial Markets, Institutions and Money 19, pp. 171–187.CrossRefGoogle Scholar
  2. Bahmani-Oskooee, Mohsen, and Yongqing Wang. 2007. “How stable is the demand for money in China?” Journal of Economic Development 32, pp. 21–33.CrossRefGoogle Scholar
  3. Bai, Chong-En, Chang-Tai Hsieh, and Yingyi Qian. 2006. “The return to capital in China.” NBER Working Paper Series 12755.Google Scholar
  4. Beggs, Michael. 2015. Inflation and the making of Australian macroeconomic policy, 1945–85. Houndmills: Palgrave Macmillan.CrossRefGoogle Scholar
  5. Bell, Stephen, and Hui Feng. 2013. The rise of the People’s Bank of China: The politics of institutional change. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
  6. Bernanke, Ben S., and Alan S. Blinder. 1992. “The Federal funds rate and the channels of monetary transmission.” American Economic Review 82 (4), pp. 901–921.Google Scholar
  7. Bernanke, Ben S., and Mark Gertler. 1995. “Inside the black box: The credit channel of monetary policy transmission.” Journal of Economic Perspectives 9 (4), pp. 27–48.CrossRefGoogle Scholar
  8. Blinder, Alan S. 1998. Central banking in theory and practice. Cambridge, MA: MIT Press.Google Scholar
  9. Bofinger, Peter. 2001. Monetary policy: Goals, institutions, strategies, and instruments. Oxford: Oxford University Press.Google Scholar
  10. Burdekin, Richard C. K., and Pierre L. Siklos. 2008. “What has driven Chinese monetary policy since 1990? Investigating the People’s Bank’s policy rule.” Journal of International Money and Finance 27, pp. 847–859.CrossRefGoogle Scholar
  11. Chen, Baizhu. 1997. “Long-run money demand and inflation in China.” Journal of Macroeconomics 19 (3), pp. 609–617.CrossRefGoogle Scholar
  12. Chick, Victoria. 1983. Macroeconomics after Keynes: A reconsideration of the general theory. Cambridge: MIT Press.Google Scholar
  13. Gerlach, Stefan, and Janet Kong. 2005. “Money and inflation in China.” Hong Kong Monetary Authority Research Memorandum 04/2005.Google Scholar
  14. Goodhart, Charles A. E. 1989. Money, information, and uncertainty. Houndmills: Macmillan.Google Scholar
  15. Goodhart, Charles A. E. 2007. “Whatever became of the monetary aggregates?” National Institute Economic Review 200, pp. 56–61.CrossRefGoogle Scholar
  16. Hafer, Rik W., and Ali M. Kutan. 1994. “Economic reforms and long-run money demand in China: Implications for monetary policy.” Southern Economic Journal 60 (4), pp. 936–945.CrossRefGoogle Scholar
  17. Huang, Guobo. 1994. “Money demand in China in the reform period: An error correction model.” Applied Economics 26, pp. 713–719.CrossRefGoogle Scholar
  18. Koivu, Tuuli. 2009. “Has the Chinese economy become more sensitive to interest rates? Studying credit demand in China.” China Economic Review 20 (3), pp. 455–470.CrossRefGoogle Scholar
  19. Kothari, S. P., Jonathan Lewellen, and Jerold B. Warner. 2014. “The behaviour of aggregate corporate investment.” MIT Sloan School Working Papers 5112-14.Google Scholar
  20. Laurens, Bernard J., and Rodolfo Maino. 2007. “China: Strengthening monetary policy implementation.” IMF Working Paper 07/14.Google Scholar
  21. Mehrotra, Aaron. 2007. “Exchange and interest rate channels during a deflationary era: Evidence from Japan, Hong Kong and China.” Journal of Comparative Economics 35 (1), pp. 188–210.CrossRefGoogle Scholar
  22. Mehrotra, Aaron. 2008. “Demand for money in transition: Evidence from China’s disinflation.” International Advances in Economic Research 14, pp. 36–47.CrossRefGoogle Scholar
  23. Michell, Jo. 2012. Credit and investment in China: A flow-of-funds analysis. PhD thesis, SOAS, University of London.Google Scholar
  24. Mishkin, Frederic S. 1995. Economics of money, banking, and financial markets, 4th ed. New York: HarperCollins.Google Scholar
  25. Mishkin, Frederic S. 2004. Economics of money, banking, and financial markets, 7th ed. Boston: Addison Wesley.Google Scholar
  26. People’s Bank of China. 2003. Monetary Policy Report, Quarter 4. Beijing: People’s Bank of China.Google Scholar
  27. People’s Bank of China. 2005. Monetary Policy Report, Quarter 1. Beijing: People’s Bank of China.Google Scholar
  28. Sun, Rongrong. 2013. “Does monetary policy matter in China? A narrative approach.” China Economic Review 26, pp. 56–74.CrossRefGoogle Scholar
  29. Wu, Ge. 2009. “Broad money demand and asset substitution in China.” IMF Working Paper 09/131.Google Scholar
  30. Xie, Ping. 2004. “China’s monetary policy: 1998–2002.” Stanford Center for International Development Working Paper 217.Google Scholar
  31. Xiong, Weibo. 2012. “Measuring the monetary policy stance of the People’s Bank of China: An ordered probit analysis.” China Economic Review 23 (3), pp. 512–533.CrossRefGoogle Scholar
  32. Yan, Qingmin, and Jianhua Li. 2016. Regulating China’s shadow banks. Milton Park: Routledge.Google Scholar
  33. Yu, Qiao, and Ping Xie. 1999. “Money aggregates management: Problems and prospects in China’s economic transition.” Contemporary Economic Policy 17 (1), pp. 33–43.CrossRefGoogle Scholar
  34. Zuo, Haomiao, and Sung Y. Park. 2011. “Money demand in China and time-varying cointegration.” China Economic Journal 22 (3), pp. 330–343.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  1. 1.Political EconomyUniversity of SydneySydneyAustralia
  2. 2.FinanceUniversity of SydneySydneyAustralia

Personalised recommendations