Did the regulatory monetary policy in China mimic the market economy?

Abstract: The People’s Bank of China (PBC) has played a vital role in conducting monetary policy during a period of fast economic growth in China. The PBC used a variety of monetary measures and instruments to implement monetary policy over the past decades. In this project, we examined whether the implementation of monetary policy in China mimics the market economy or not. We summarise the main tools that have been used in the monetary policy based on the studies by Qiong (2011) and Gerlach (2004). We then applied the variance and covariance analysis of macroeconomic variables of China and the US for two periods. The results of our analysis showed that China and the US had many similarities. Our empirical analysis, using the Taylor Rule theoretical framework demonstrates that the difference between the actual interest rate and the theoretical interest rate derived from the Taylor Rule for China and the US has the same trend. Our main conclusion is that the implementation of monetary policy in China mimics the market economy.