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The Effectiveness of China’s Macro-prudential Policy during Transition Period of Monetary Policy from Quantitative to Pric
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TitleThe Effectiveness of China’s Macro-prudential Policy during Transition Period of Monetary Policy from Quantitative to Pric  
AuthorLi Tianyu,Zhang Yishan,Feng Ye and Meng Xianchun  
OrganizationJilin University; The People's Bank Of China;;; 
Key WordsMacro Prudential Policy; Liquidity Management; Price-volume Conversion 
AbstractThe Macro Prudential Assessment is an important part of the financial control policy framework, which has two pillars of "monetary policy & macro prudential policy", and it is of great significance to carry out theoretical research on its effectiveness. Taking into account the close relationship between the monetary policy environment and the effectiveness of the macro prudential policy, this paper constructs an extended version of BGG-DSGE model to capture the Chinese characteristics in the context of monetary policy transformation. We study the effectiveness of the Macro Prudential Assessment on the basis of clarifying the transmission path of monetary policy during its transition period. We have the following conclusions: First the operative objective of Monetary Policy during this period is liquidity management, which has both features of "price" and "quantitative". Second, it is crucial for the central bank to finely manage liquidity, because the liquidity produced endogenously by real economy will exacerbate economic contraction, forming the resonance between financial sector tightening and economic cycle declining, thus exacerbating economic fluctuations. Thirdly, under the liquidity management of monetary policy, the Macro Prudential Assessment with the dynamic deposit reserve ratio is effective, but as its price feature emerging, its effectiveness gradually weakens. Fourthly, MPA management systems, whether pegged to the "Loan-to-Value ratio" or "capital requirement ratio",can both stabilize financial system, the only difference is that the reverse feedback mechanism of the LTV variable can also encourage enterprises to deleverage. 
Serial NumberWP1417 
  • Institute of Economics, Chinese Academy of Social Sciences
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