Intergovernmental Relations and Monetary Management
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As pointed out in Chapter 1, fiscal policy in China has virtually played no role in stabilizing the economy since the central fiscal authority has faced increasing fiscal imbalance and was overburdened by other objectives. During the course of the decentralization, the main task for macroeconomic control has been performed by the monetary policy. Unfortunately, the monetary policy has not functioned well: it has failed to stabilize the economy when necessary and, on many occasions, it became the cause of macroeconomic instability. Repeated inflationary pressures occurred during the 15-year reform period, with the retail price index shooting up to 18.7 per cent in 1989 and 21.8 in 1994. At the same time, output has also fluctuated significantly and frequently.
KeywordsMonetary Policy Central Bank Money Supply Local Bank Central Bank Independence
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