| Sumario: | After identifying the two major institutional features of the Chinese economy, i.e., the coexistence of state-owned enterprises and private firms and tight governmental control over the financial sector, we incorporate these features into an endogenous growth model to investigate the long-run impacts of credit control and interest rate policies on the macroeconomic performance of the transforming Chinese economy. We find that (i) raising the interest rate on government bonds reduces the inflation rate without tempering the output growth rate, (ii) reducing the bank loans available to the state-owned enterprises may lower both the inflation rate and the output growth rate, (iii) increasing the nominal interest rate on bank deposits will exert a stagflationary effect on the economy, i.e., increasing the inflation rate but reducing the output growth rate, and (iv) changing the nominal interest rate on bank loans will have little real effect.J. Comp. Econom., June 2000, 28(2), pp. 293–320. Department of Decision Sciences & Managerial Economics, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong; York University, Toronto, Ontario, Canada M3J 1P3; and National University of Singapore, Singapore. Copyright 2000 Academic Press.
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