A Comparative Study of China’s Monetary Policy Rules——On the Perspective of Three Rules Based on DSGE Model
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| Title | A Comparative Study of China’s Monetary Policy Rules——On the Perspective of Three Rules Based on DSGE Model
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| Author | Wang Xi, Wang Ling, Peng Yulei, and Song Xiaofei |
| Organization | Sun Yat-sen University |
| Email | lnswx@mail.sysu.edu.cn；wangling_sdu@163.com；wangling_sdu@163.com；lnsongxf@foxmail.com |
| Key Words | Interest Rate Rule; Quantity Rule; Mixed Rule; Comparative Study; DSGE |
| Abstract | Either pure interest-rate rule or quantity rule fails to reflect the practical implement of China’s monetary policies. On this account, the paper constructs a mixed monetary policy rule with inclusiveness and discretion. By developing a New Keynesian DEGE model, firstly, we use calibration and Bayesian method to separately estimate the parameters in the model under the interest-rate rule, quantity rule and the mixed rule. Then, we compare first-order and second-order moments of these variables' differences between the data and estimated values under three rules. We conclude that the mixed monetary policy can match the economic performance much better, and is more suitable to describe the central bank’s behavior. Based on the welfare analysis represented by equivalent consumption deviation from steady state, the paper indicates that the central bank can utilize some discretion to stabilize the macro-economy and minimize the welfare cost when different shocks arise. In short, the new mixed rule dominates interest-rate rule or quantity rule both positively and normatively. |
| Serial Number | WP1264 |
| Time | 2018-02-23 |
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