A DSGE Model for China’s Monetary and Macroprudential Policies

Peter Sinclair and Lixn Sun

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a calibrated DSGE model for simulating China’s monetary policy and macroprudential policy. The empirical results show, first, that the interest rate is a better instrument for China’s monetary policy than the required reserve ratio when the central bank is solely concerned by the price stability; second, that the loan-to-value (LTV) ratio is a very useful macroprudential tool for China’s financial stability, and the required reserve ratio could be used as an instrument for both objectives. Whether macroprudential policy complements or conflicts with monetary policy depends upon the instruments choices of two policies. Our policy experiments suggest three combination choices of instruments for China’s monetary and macroprudential policies.

Keywords: DSGE Model; Monetary Policy; Macroprudental Policy; China’s Economy (search for similar items in EconPapers)
JEL-codes: E5 E6 G1 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-cba, nep-cna, nep-dge, nep-mac, nep-mon and nep-tra
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https://mpra.ub.uni-muenchen.de/68567/1/MPRA_paper_62580.pdf revised version (application/pdf)

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