Uncertainty, macroeconomic fluctuation and the selection of monetary policy rules in China: a quantitative analysis based on Bayesian DSGE Model

【Author】

ZHUANG Ziguan;CUI Xiaoyong;ZHAO Xiaojun

【Institution】

School of Finance, Zhongnan University of Economics and Law;School of Economics, Peking University;School of Economics, Peking University

【Abstract】

This paper estimates a monetary DSGE model with Bayesian method based on models from Christiano et al. (2005) and Smets & Wouters (2003) to analyze the selection issues of China’s monetary policy rules by using China’s macro quarterly data, such as GDP, consumption, investment, interest rate, monetary supply, price index and employment. With respect to Chinese macroeconomy and the complexity of monetary policy operations, this paper assumes three operational rules which are Taylor rule 1, Taylor rule 2 and MacCullum rule and the model faces uncertainties from model parameters and multiple macroeconomic shocks. Bayesian estimation results show that model parameter uncertainties only influence the magnitude of monetary policy shocks effects, rather than change the direction of it. Results also show that the selection of monetary policy rules is mainly affected by macroeconomic shocks, and the impulse response analysis indicates that the central bank should adopt Taylor rule 2.

【Keywords】

macroeconomic fluctuation;DSGE Model;monetary policy rules;Bayesian estimation

References

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Springer Journals Database

Total: 36 articles

  • [1] Xie Ping & Luo Xiong (Research Bureau,The People's Bank of China;Department of Postgraduates,The People's Bank of China), Taylor Rule and Its Empirical Test in China's Monetary Policy, Economic Research Journal,
  • [2] Lu Jun & Zhong Dan (Lingnan college of Sun Yat Sen University), Cointegration Test of Taylor Rule in China, Economic Research Journal,
  • [3] 陈昆亭;龚六堂;, Numerical Simulation for China Economy in a Sticky-price Model, The Journal of Quantitative & Technical Economics,
  • [4] LIPING CHEN(Shanghai University of Finance and Economics), Inflation Targeting Cannot Solve the Problem of Low Efficiency of Monetary Policy in China—A Research Based on Time-lags and Shocks of Monetary Policies, China Economic Quarterly,

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