The Sectoral Implications of Macroeconomic Policy: The Case of Postreform China

Abstract

We construct a two-part model of the Chinese economy. The first part consists of a money-supply equation, a real money-demand equation, and a savings equation. The second part comprises a set of sectoral equations. The estimated model is then used to generate a dynamic simulation of the paths of real national income, aggregate price level, sectoral output, and sectoral prices. The model tracks quite well within sample, thus indicating that it may be used to analyze the future effects of policy changes. We therefore carry out counterfactual policy simulations based on monetary changes.

Keywords: Macro-adjustment, China

JEL Classification: C68, O53