Macro Regime And Economic Growth In China

In this paper, the authors investigate the relationship between Chinese macroeconomic policy and economic growth, and examine how the choice of macroeconomic regime affects economic performance in China. An open-economy model is developed for this purpose. It is a three-sector "Almost small" open-economy macroeconomic model, with as-set markets and forward-looking agents. This open-economy model is then adopted to analyze the implications of both domestic and external growth shocks to the Chinese economy under two alternative macroeconomic policy regimes. These policy regimes have two extreme assumptions on the exchange rate, with differing degrees of financial capital mobility.