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Transmission Mechanism and Macro Effect of Lending Facility——Analysis Based on a New Keynesian DSGE model
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TitleTransmission Mechanism and Macro Effect of Lending Facility——Analysis Based on a New Keynesian DSGE model  
AuthorWang Xiang and Chen Shiyi  
OrganizationSchool of Economics, Fudan University; 
Key WordsLending facility; Financial friction; DSGE model 
AbstractIn the stage of the "new normal" of China's economy, the effectiveness of traditional monetary policy has declined and central bank creates the standing and medium-term lending facility to ease liquidity pressure on the market. So this paper introduces lending facility into a DSGE model with financial frictions to study the transmission mechanism and macroeconomic effects of lending facility and its relationship with traditional monetary policy. Based on the calibration and Bayesian estimation of parameters, numerical simulation results show: first, lending facility can significantly reduce bank leverage ratio, lower external financing costs of enterprise, ease the liquidity pressure on the market and has modest effects on output and inflation; second, along with the extension of policy period, the macroeconomic effects become more significant; third, the macroeconomic effects of lending facility become more significant when central bank implements lending facility with nominal interest rate unchanged, which represents the complementarity between the traditional monetary policy and lending facility. 
Serial NumberWP1153 
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