The Effect of Gradual Exchange Rate Deregulation on China’s Monetary Policy
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| Title | The Effect of Gradual Exchange Rate Deregulation on China’s Monetary Policy
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| Author | Zhang Xiang and He Ping |
| Organization | School of Economics and Management at Tsinghua University |
| Email | zhangxiang04@mails.tsinghua.edu.cn；heping@sem.tsinghua.edu.cn |
| Key Words | Exchange Rate Deregulation; Monetary Policy; Economic Growth; Inflation; Structural Vector Autoregression |
| Abstract | It can be expected that the RMB internationalization will develop by leaps and bounds during the National Twelfth Five-Year Plan period. The advancement of RMB internationalization will be characterized with deregulation in interest rate and exchange rate, along which the effectiveness of monetary policy will change accordingly. In this paper, applying the structure vector autoregressive model proposed by Sims (1986), featured with the characteristics of China's economic structure, we analyze the effect of exchange rate deregulation on China’s monetary policy. We find that monetary policy will become more effective on inflation control and economic growth. In addition, we find that the optimal monetary policy involves less intense response to inflation. However, the best response to economic growth will increase with our degree of concern increased. |
| Serial Number | WP211 |
| Time | 2012-02-15 |
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