Social Sciences in China

Vol. 34, No. 3, 2013

A Test of the Relationship between Monetary Growth Uncertainty and

Economic Growth in China: 1980-2008

(Abstract)

Liu Jinquan and Sui Jianli 

Monetary growth uncertainty in China can come from either monetary policy shocks or macroeconomic shocks. Our examination of the relationship between Chinese economic growth and monetary growth uncertainty indicates that monetary growth uncertainty results mainly from macroeconomic shocks. The pre-1998 period saw quite a high level of uncertainty, but this was markedly reduced after 1998. Monetary growth uncertainty caused by monetary policy shocks can be an effective stimulus for economic growth, implying the effectiveness of monetary policy regulation. From 2003 on, however, monetary growth uncertainty caused by macroeconomic shocks has inhibited economic growth, indicating the marked negative impact on China’s steady growth of the economic shock represented by the international financial crisis. Active measures should be taken at the national level for early warning and prevention of economic risk.