Dual-Track Taylor Rule, Deposit Insurance and the Conduct Effectiveness of Monetary Policy
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| Title | Dual-Track Taylor Rule, Deposit Insurance and the Conduct Effectiveness of Monetary Policy
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| Author | Liu Xiaoxing, Zhang Xu and Yao Dengbao |
| Organization | School of Economics and Management, Southeast University |
| Email | starsunmoon198@163.com； |
| Key Words | Dual-Track Interest Rates; Taylor Rule; Deposit Insurance; Conduct Efficiency |
| Abstract | Taylor rule has played a role for monetary authorities to set, implement, evaluate and improve monetary policy. However, the instability of the rule’s parameters hinders its development. Previous studies have ignored the relationship between interest rate liberalization and parameters’ instability. In this paper, we develop a quantitative monetary DSGE model to investigate the relationship between conduct effectiveness of monetary policy and interest rate liberalization or deposit insurance by introducing five factors: monetary shock, regulated interest rate shock, liquidity shock, deposit insurance system and financial friction. The results show that traditional Taylor rule is not suitable for the dual-track system and the dual-track Taylor rule exactly suggest the impact of interest rate liberalization on monetary transmission. The results also show that interest rate liberalization significantly improves the conduct effectiveness of traditional monetary policy and but weakens the impact of regulated interest rate on real economy. At the same time, a rise in deposit insurance rate leads to an increase in the output effect of monetary policy, but doesn’t impact the effect of liquidity shock. |
| Serial Number | WP992 |
| Time | 2015-12-18 |
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