Date of Award

6-2019

Document Type

Union College Only

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Funda Dogruer

Keywords

China, Monetary Policy, Transition Economy, Inflation Control

Abstract

For over two decades, China has enjoyed sustained economic growth, going from a country that was falling behind regional neighbors to quickly emerging among the world’s economic powers. The roots of China’s economic ambitions can be traced back to 1953 with the creation of “The Five Year Plan”, a list of economic and industrial initiatives set out by Mao and the government. 1978 saw China’s economy undergo significant upheaval as it began its transition to a free market economy. The government realized that on top of the need to move away from state-owned enterprises they would also have to cease their isolationism and begin global integration through trade and investment. By 1992 China’s economy was one of the ten largest in the world, the remarkable growth continued late into the second decade of the 21st Century. As their economy grew a constant remained the goal of their monetary policy strategy, which pledged to keep the value of the currency stable and enable growth. The Chinese central bank, The People’s Bank of China, under the government’s recommendation is in charge of implementing monetary policy in accordance with the goals. As China is now undeniably a global superpower, much research has been conducted on all facets of Chinese monetary policy. Chinese monetary policy is unconventional, differing from western developed countries and as a result, the effectiveness of the People’s Bank of China and their policies is an explored topic. This study analyzes how monetary policy tools used by the People’s Bank of China impact the GDP of China as well as key economic indicators. Through the use of OLS regressions and Vector Auto regressions, this paper finds that monetary policy has been utilized effectively to help control inflation, invite foreign investment, and increase exports, thus spurring economic growth.

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