The Transition to Market-based Monetary Policy: What can China Learn from the European Experience?

Reprint No. 2007:4

Author(s): Jens Forsbæck and Lars OxelheimYear: 2007 Title: Journal of Asian Economics Volume (No.): 18 (2) Pages: 257–283

We discuss the prospects for Chinese money market development and transition to market-based monetary policy operations based on a comparative historical analysis of the present Chinese situation and the development in 11 European countries from 1979 up to the launch of the European Economic and Monetary Union (EMU). Central banks in the latter group of countries typically had an incentive to encourage the formation of efficient benchmark segments in the domestic money markets for the conduct of open market operations as traditional quantity-oriented instruments became increasingly ineffective. China is displaying many of the same symptoms as the European countries in the 1970s and 1980s, including poor monetary transmission due to excess liquidity and conflicts of interest due to unclear priority among multiple policy goals.We conclude that in a number of aspects, current Chinese monetary policy operations are counter-productive to efforts to develop an efficient money market that can serve as arena for an effective market-based monetary policy, and provide policy recommendations.


* With the permission of Elsevier published in Chinese in Journal of Comparative Studies, issue 33, 2007

Forsbæck, Jens and Lars Oxelheim (2007), "The Transition to Market-based Monetary Policy: What can China Learn from the European Experience?". Journal of Asian Economics 18(2), 257–283.

Lars Oxelheim


Ph: +46 8 665 4527
Mob: +46 70 861 9361

Interdisciplinary European Studies

The European Union and the Return of the Nation State


This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

About the book


Seminars organized by IFN


To present ongoing research informal brown-bag seminars are held on Mondays at 11:30 am. This is an opportunity for IFN researchers to test ideas and results.

Academically oriented seminars are most of the time held on Wednesdays at 10 am. At these events researchers from IFN and other institutions present their research.

In addition, IFN organizes seminars open to the public. Topics for these are derived from the IFN research.

Research Institute of Industrial Economics, Grevgatan 34 - 2 fl, Box 55665, SE-102 15 Stockholm, Sweden | Phone: +46-(0)8-665 45 00 | info@ifn.se