MODELING THE POSTREFORM CHINESE ECONOMY

This paper draws on recent theoretical literature to develop a price-responsive empirical model of the post-reform Chinese economy taking into account the two-tier pricing systems operating domestically and in the market for foreign exchange. Model results for major macroeconomic and trade policy changes are presented using a computable general equilibrium model with 24 production sectors. The results art consistent with the underlying theory and highlight the complex policy linkages in post-reform China and the need to take into account the interactions between macroeconomic and trade policies when analyzing economic developments in China.