nep-cna New Economics Papers
on China
Issue of 2008‒12‒01
two papers chosen by
Zheng Fang
Ohio State University

  1. McCallum rule and Chinese monetary policy By Mehrotra, Aaron; Koivu, Tuuli; Nuutilainen, Riikka
  2. Time to Change What to Sow: Risk Preferences and Technology Adoption Decisions of Cotton Farmers in China By Elaine Meichen Liu

  1. By: Mehrotra, Aaron (BOFIT); Koivu, Tuuli (BOFIT); Nuutilainen, Riikka (BOFIT)
    Abstract: This paper evaluates the usefulness of a McCallum monetary policy rule based on money supply for maintaining price stability in mainland China. We examine whether excess money relative to rulebased values provides information that improves the forecasting of price developments. The results suggest that our monetary variable helps in predicting both consumer and corporate goods price inflation, but the results for consumer prices depend on the forecasting period. Nevertheless, growth of the Chinese monetary base has tracked the McCallum rule quite closely. Moreover, results using a structural vector autoregression suggest that our measure of excess money supply could be used to identify monetary policy shocks in the Chinese economy.
    Keywords: McCallum rule; monetary policy; China
    JEL: E31 E52
    Date: 2008–11–21
  2. By: Elaine Meichen Liu (Princeton University)
    Abstract: The slow diffusion of new technology in the agricultural sector of developing countries has long puzzled development economists. While most of the current empirical research on technology adoption focuses on credit constraints and learning spillovers, this paper examines the role of individual risk attitudes in the decision to adopt a new form of agricultural biotechnology in China. I conducted a survey and a field experiment to elicit the risk preferences of 320 Chinese farmers, who faced the decision of whether to adopt genetically modified Bt cotton a decade ago. Bt cotton is more effective in pest prevention and thus requires less pesticides than traditional cotton. In my analysis, I expand the measurement of risk preferences beyond expected utility theory to incorporate prospect theory parameters such as loss aversion and nonlinear probability weighting. Using the parameters elicited from the experiment, I find that farmers who are more risk averse or more loss averse adopt Bt cotton later. Farmers who overweight small probabilities adopt Bt cotton earlier.
    Keywords: Technology Adoption, Risk Preferences, Prospect Theory
    JEL: O14 O33
    Date: 2008–05

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