On potential debt monetisation for China’s post-Covid recovery: what can we learn from the past?

Cao, Ziyi and Ou, Zhirong ORCID: https://orcid.org/0000-0002-4610-7183 2021. On potential debt monetisation for China’s post-Covid recovery: what can we learn from the past? Economic Issues 26 (2) , pp. 39-56.

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Abstract

A measure of the degree of debt monetisation is constructed for its impact on the business cycle to be studied in a standard VAR model. Debt monetisation is hardly stimulative, as it raises public demand that crowds out almost as much demand from the private sector. However, it generates inflation, presumably because of inflationary expectations. Nevertheless the impact of debt monetisation on the business cycle dynamics is trivial, due to the low efficiency of the monetary transmission mechanism. Unless policy proposals are for extraordinarily aggressive moves, or they are accompanied by monetary reforms which facilitate monetary transmission, the recent debate on debt monetisation, we argue, possesses more theoretical meaning than practical meaning for China’s post-Covid recovery.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General)
Publisher:	Economic Issues Education Trust
ISSN:	1363-7029
Date of First Compliant Deposit:	10 September 2021
Date of Acceptance:	14 August 2021
Last Modified:	13 Nov 2024 08:45
URI:	https://orca.cardiff.ac.uk/id/eprint/143422

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