Nonlinear monetary policy and macroeconomic stabilization in emerging market economies: Evidence from China

Yong Ma

Economic Systems, 2016, vol. 40, issue 3, 461-480

Abstract: This paper provides a new approach to investigate monetary policy nonlinearities within a micro-founded DSGE model by incorporating a transition function into the traditional Taylor rule. The model is estimated using the Bayesian method for the Chinese economy over the period 1998–2013. The empirical results show that the central bank of China actually adopts a nonlinear Taylor rule and pursues an inflation target zone of [1%, 5%] rather than sticking to a rigid target. Further results from impulse responses and welfare comparisons suggest that economic stabilization is an important motive in the conduct of monetary policy in China and the adoption of a nonlinear rule seems to serve this goal better than the traditional linear rule.

Keywords: Monetary policy; Macroeconomic stabilization; Nonlinear Taylor rule (search for similar items in EconPapers)
JEL-codes: E61 E63 F41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:40:y:2016:i:3:p:461-480

DOI: 10.1016/j.ecosys.2015.12.003

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