TAILIEUCHUNG - Dual-track interest rates and the conduct of monetary policy in China

China has a dual-track interest-rate system: bank deposit and lending rates are regulated while money and bond rates are market-determined. The central bank also imposes an indicative target, which may not be binding at all times, for total credit in the banking system. We develop and cali- brate a theoretical model to illustrate the conduct of monetary policy within the framework of dual- track interest rates and a juxtaposition of price- and quantity-based policy instruments. We model the transmission of monetary policy instruments to market interest rates, which, together with the quantitative credit target in the banking system, ultimately are the. | BOFIT Discussion Papers 21 2011 Dong He and Honglin Wang Dual-track interest rates and the conduct of monetary policy in China EUROJARJESTELMA EUROSYSTEMET Bank of Finland BOFIT Institute for Economies in Transition BOFIT Discussion Papers Editor-in-Chief Laura Solanko BOFIT Discussion Papers 21 2011 Dong He and Honglin Wang Dual-track interest rates and the conduct of monetary policy in China ISBN 978-952- 462-716-0 ISSN 1456-5889 online This paper can be downloaded without charge from http bofit Suomen Pankki Helsinki 2011 BOFIT- Institute for Economies in Transition Bank of Finland BOFIT Discussion Papers 21 2011 Contents 1 2 Institutional The monetary policy framework in Dual-track interest rates and the credit Interbank money and bond 3 A Theoretical 4 Empirical 5 Empirical 6 Concluding Tables. 39 Appendices. 43 Graph. 54

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