The impact of monetary variables on the price level during inflation and deflation periods in China

This chapter tests the Granger causality from money (m) to price ( p) in China since the 1990s. This period is chosen for a number of reasons. The Chinese economy experienced both a historical double-digit inflation in the mid-1990s and unprecedented deflation in the late 1990s and early 2000s. The People’s Bank of China, which was given the status of the Central Bank of China in 1983, has been trying to adopt an active monetary policy to reduce inflation and contain deflation. However, there remains an open issue whether its policy is effective.