The Taylor Rules and Macroeconomic Fluctuation in China: 1994–2006

Qiong Li () and Zhiwei Wang
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Qiong Li: Strategic Planning Department, The People’s Insurance Company (Group) of China, Beijing 100084, China
Zhiwei Wang: School of Economics, Peking University, Beijing 100871, China

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2010, vol. 5, issue 2, 232-253

Abstract: The correlation and controllability of money supply as the intermediate object of monetary policy is gradually weakening, the argument that interest rate substitutes the money supply for the alternative object is hotly discussed. According to the Taylor rule and its extensions, this paper has a positive analysis on the efficiency of Taylor-type rules in China through historical analysis, policy reaction function approach and co-integration technology of time series analysis. This paper draws a conclusion that Taylor rule is unstable in China, and less correlation can be found between interest rate and the output gap, and the central bank focus on the inflation target rather than economic growth. Therefore, the central bank should abide by the simple rule of inflation targeting.

Keywords: Taylor rule; historical analysis; GMM test; co-integration analysis (search for similar items in EconPapers)
JEL-codes: F41 G28 G32 (search for similar items in EconPapers)
Date: 2010
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