A New Keynesian Model for Analysing Monetary Policy in Mainland China

Li-gang Liu and Wenlang Zhang
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Li-gang Liu: Research Department, Hong Kong Monetary Authority
Wenlang Zhang: Research Department, Hong Kong Monetary Authority

No 718, Working Papers from Hong Kong Monetary Authority

Abstract: This paper adopts a three-equation New Keynesian model to evaluate the appropriateness of China's monetary policy framework. Our simulation results show that a hybrid rule that relies on both interest rate and quantity of money to conduct monetary policy appears to be more suitable than its alternatives at the current stage of economic and financial market development. Our simulation results also show that a sharp appreciation of the renminbi exchange rate would be disruptive to the inflation and output processes of the economy, despite its effectiveness in curbing inflation.

Keywords: Monetary Policy Rule; New Keynesian Model; China (search for similar items in EconPapers)
JEL-codes: E42 E52 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2007-11
New Economics Papers: this item is included in nep-cba, nep-cna, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:hkg:wpaper:0718

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