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09 23 2015 | by Victor Xing | Central Banks

To which school of economic thought does PBOC (People’s Bank of China) Governor Zhou Xiaochuan belong to?

Governor Zhou is a pragmatic Keynesian policy maker.  It is worth noting that the PBOC is not an independent central bank, and Chinese policy makers routinely coordinate fiscal and monetary policies to achieve both short-term and medium-term economic objectives (this is unusual in other economies, as fiscal policy changes tend be harder to enact due to political wrangling).

Therefore, Governor Zhou has the luxury of deferring monetary policy responses if a fiscal response is available.  Yet, a lack of independence is a double-edged sword.  There had been more than one occasions that Governor Zhou was forced to backtrack from earlier statements of maintaining current policy by announcing sudden rate cuts.  Outside observers would jokingly comment that “Governor Zhou was tapped on the shoulder by his boss.”

Governor Zhou has questioned some of the more aggressive Keynesian policies, such as explicit forward guidance, and he is rather humble in acknowledging central bank limitations and reasons to be cautious.

Overall, I would call Governor Zhou a pragmatic Keynesian policy maker who is open to alternative views and aware of limits (as well as costs) of central bank monetary policies.

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