Differences between the new and old macroeconomic trilogy

ZHANG Bin

Institute of World Economics and Politics, Chinese Academy of Social Sciences
Abstract:

This paper represents an attempt to review the macroeconomic trilogy that emerged in China after a round of credit expansion and to analyze the factors that gave rise to such a trilogy. Based on the review and analysis, we are in a position to offer an outlook on what the new macroeconomic trilogy holds in store and present macroeconomic policy recommendations by conducting a comparative analysis of the differences between China’s monetary environment and the real economic environment after two rounds of credit expansion. As the magnitude of stimulus is far greater under the new monetary policy than under the previous monetary policy and the structural problems are further exacerbated under the sweeping economic stimulus package, China will face a severe asset-price bubble and real economic structural distortion risks going forward. Once the bubble bursts, it will deal a heavy blow to Chinese economic sectors’ balance sheets. To prevent this doomsday scenario, the macroeconomic management should rein in monetary policy expansion and concentrate more effort on pushing ahead with economic structural reform. During the economic transition period, China should tolerate a moderate extent of slowdown in economic growth.

Key words:

Economic stimulus plan, structural distortion, asset price

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