Date of Degree


Document Type


Degree Name





Merih Uctum

Committee Members

Chun Wang

Thom Thurston

Subject Categories

Econometrics | International Economics | Macroeconomics


monetary policy, fiscal policy, exchange rates, interest rates, emerging market economy, time series


This dissertation examines the effects of exchange rate and macroeconomic policy in China. It consists of three chapters. Chapter 1 explores the dynamics of monetary transmission mechanism. As China’s domestic financial markets deepen and develop further toward a market-based system, the country’s monetary policy transmission should continue to improve in the sense that the policy instrument’s influence on economic conditions increases in magnitude and stabilized across time. Using a short-term key interest rate as a standard monetary policy tool and time-varying parameter techniques, this study empirically demonstrates that China’s monetary policy framework is in the midst of transitioning to a market-based approach, and the analysis more closely examines the emerging monetary transmission mechanism in the modern era.

Chapter 2 investigates the exchange rate pass-through to domestic inflation along various distribution stages in China. Exchange rate movement is correlated with consumer prices both via their direct pass-through effect, and indirectly through its impacts on input and producer prices, which, in turn, affect final consumer prices. The baseline results are compared between the recursive vector autoregressive and vector error correction models. An appreciation of the yuan is estimated to suppress inflationary pressure at various stages along the distribution chain in the domestic market. By incorporating the long-run information, compared to the recursive case, the error correction estimation reveals stronger pass-through effect to consumer price. Various modifications and cointegration restrictions are examined for robustness.

Chapter 3 examines the effects of fiscal policy, as a change in government spending or taxes on macroeconomic variables comprising inflation, output and interest rates. The two central issues concerning fiscal policy makers are macroeconomic stability and growth stimulation. Built on the Blanchard-Perotti identification approach, this paper empirically analyzed the influence of fiscal policy to aggregate economic activity, and the effectiveness of fiscal policy instruments when compared to advanced economies. The findings suggest that, inflation positively responds to fiscal shocks, and output is positively correlated with tax revenue; however, a government spending shock tends to be neutral.