3. The policy step adopt to cope with deflation

Since it takes time for the reform measures to be effective in order to reduce uncertainties, the government has no other choices but to rely on its macroeconomic policy instrument to boost the economy.

On the monetary side:

First, as to the money supply, the Central Bank of China had reduced interest rate nien times. At present, the interest rate for one-year loan is about half of the rate in 1996 and interest rate for deposit is only a quarter of the 1996 level.

Second, especially, the Central Bank of China had changed the deposit reserve system in March 1998. The 7 percent payment preparation requirement was abolished and the deposit reserve requirement was lowed from 13 percent down to 8 percent. And now it is 6 percent. The measures led to a 60 percent reduction in the legally required deposit reserve ratio.

Third, to encourage urban households to buy housing and vehicle, to increase domestic demand, the People’s Bank of China promulgated and < The Administration Measure of Vehicle Consumption Loan> to stimulate loans for consumption.

3. The policy step adopt to cope with deflation
4. What makes the policy ineffective?
5. Conclusion and suggestion
References:

References:

Paul A. Samuelson, Willian D. Nordhaus (1998) Economics (The sixteen edition)
Page 377, 406-407, 438-442,470-471.

Justin Yifu Lin.(1999) The Current Deflation in China: Causes and Policy Option, China Center for Economic Research, Peking University, December 1999

Ligang Song.(1999)The challenge of deflation: policy choices and their effectiveness, China update 1999 conference papers

Wang Tong-eng. (1999) Price deflation in China, Peace forum paper, December 1999.

Wu Qing. (2000) The definition, reasons and reality of deflation in China, Finacial research, 2000.3

Hai Wen (2000) Deflation and exports China Center for Economic Research, Peking University, 2000.6

Wang liping (2001) The reasons and suggestions to deflation in China, Journal of Zhejiang University, 2001,3