Optimal Central Banking Policies: Envisioning the Post-Digital Yuan Economy with Loan Prime Rate-setting

King Yoong Lim, Chunping Liu and Shuonan Zhang

NBS Discussion Papers in Economics from Economics, Nottingham Business School, Nottingham Trent University

Abstract: We develop a DSGE model with cash and digital currency to study the financial stability properties of two potential central banking policies in China. Specifically, a Loan Prime Rate (LPR)-setting policy function and central bank digital currency (CBDC) implementation are examined. Distinguish between a benchmark model and a "Post-CBDC world", we Bayesian-estimate the model. Post-CBDC implementation, we find macroeconomic variables to display greater procyclicality to real shocks. However, we also find a potential LPR-setting policy to exhibit an improved stabilization property in the post-CBDC world. We uncover an optimal design of LPR policy function, which targets more specifically housing and capital asset markets, as well as the growth in CBDC. This suggests a potential policy complementarity between these two seemingly unrelated central banking policies in the financial stability agenda of China going forward.

Keywords: China; Digital Currency; Loan Prime Rate; Monetary Policy; Bayesian DSGE models. (search for similar items in EconPapers)
JEL-codes: C11 E4 E52 E58 (search for similar items in EconPapers)
Date: 2021-06
New Economics Papers: this item is included in nep-cba, nep-cna, nep-dge, nep-mac, nep-mon, nep-opm and nep-pay
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.ntu.ac.uk/__data/assets/pdf_file/0021/1 ... ime-rate-setting.pdf First version, 2021 (application/pdf)

Related works:
Journal Article: Optimal central banking policies: Envisioning the post-digital yuan economy with loan prime rate-setting (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbs:wpaper:2021/02

Access Statistics for this paper

More papers in NBS Discussion Papers in Economics from Economics, Nottingham Business School, Nottingham Trent University
Bibliographic data for series maintained by King Lim ( this e-mail address is bad, please contact ).