Post-1990 Chinese monetary policy is modeled with aMcCallum-type rule that takes into account the Peoples Bankof Chinas emphasis on targeting the rate of money supplygrowth. Peoples Bank policy appears responsive to the gapbetween target and actual nominal GDP as well as to externdpressures. Additional cointegration analysis yields estimates of the gapbetween estimated money demand and actual money supplythat appear to track the inflationary trends evident over oursample period. Chinese inflation and monetary policyoutcomes seem reasonably captured using a standardmonetary approach, therefore, without the need to appeal toChina-specific "structural" factors. There has been an outpouring of recent research on thequestion of the exchange rate between the US dollar and theChinese Renminbi, with a number of economists making acase for much larger Renminbi revaluation than the initial 2％shift announced on July 21, 2005. Notwithstanding anyexternal effects this policy move may have, allowing somefreedom from the fixed exch ge rate constraint promises toincrease the Peoples Bank of Chinas scope for effectivemonetary control. Ba Shusong, deputy director-general of theFinance Institute of the State Councils Development ResearchCenter, for example, emphasized that the fixed exchange ratehad "jeopardized the independence of Chinese monetarypolicy. In this study we find a consistent monetary policyresponse to real output that is combined, however, withapparent sensitivity to external pressures. The movementaway from the fixed exchange rate policy may well reflect theChinese authorities awareness of the benefits for monetarypolicymaking rather than necessarily representing a responseto foreign demands for exchange rate adjustment.　　 In recent years monetary policy analysis has beenincreasingly dominated by the estimation of the "Taylor rule"(Taylor, 1993), whereby central bank interest-rate setting is related to the gap between inflation and its target value and the gap between actual real. GDP and its potential level. Wheninterest rates are already very low, a problem with the Taylorrule is that it may call for negative interest rates that cannotbe delivered in practice, however. In such cases as Japan,therefore, McCallums (1988) alternative rule based onexplaining movements in the monetary base as a function ofGDP and velocity growth may be more applicable (see alsoMcCallum, 1993; 2003). Estimation of a Taylor rule would notbe sensible here as not only does the Peoples Bank of Chinanot have a target interest rate as such but also loan anddeposit rates are still largely administratively determined. Onlyrecently has any movement from the specified interest ratesbeen permitted.　　 Given that the Peoples Banks money supply targets havegenerally emphasized broad money (M2), we consider thebehavior of M2 as a dependent variable in our empirical workin addition to the monetary base series originally suggested byMcCallum (1988). We consider the 1990-2003 period, therebyincluding the 1993-1994 inflation spike, the subsequent anti-inflationary policy, the attempts to reflect the economy afterthe 1997-1998 Asian financial crisis, and the more recentpressures for Renminbi appreciation that emerged after 2001.Our andysis of Chinese monetary policy relative to theMcCallum rule suggests that monetary policy was typically tootight until around 2001. We also find that, if we augment thebasic McCallum rule, there is a significant monetary policyresponse to the rate of change of foreign exchange reservesthat suggests less than full sterilization, as well as asignificant shift that appears to coincide with the onset ofdeflation at the time of the Asian financial crisis. Whetherinflation will continue to rise crucially depends, however, onthe Peoples Banks response to this situation -- as well as theeffects of changes in the exchange rate regime. As they stand,our results already imply, based on a forecast that updatesinformation as it is received, that inflation may well showsigns on moderating in the near future.