Optimal Monetary Policy Rules in A Simple Stochastic Macro Model: China's Evidence
Shengzu Wang () and
Shen Guo ()
Macroeconomics from University Library of Munich, Germany
In this paper we apply a simple macro model to explore and evaluate certain optimal monetary policy rules for China's economy. To be more consistent with the central bank (the People's Bank of China)'s behaviour, we use money supply as a monetary policy instrument rather than the commonly used interest rate. Policy rules are optimal in terms of minimizing the predetermined loss functions, and the parameters of these rules are determined by stochastic simulation. Different forms of policy rule and loss function are considered, especially for exchange rate volatility and money supply volatility. The optimality of monetary policy rules is evaluated by comparing the shifts of policy frontiers.
Keywords: Monetary Policy Rule; Loss Function; Stochastic Simulation; Policy Frontier; China (search for similar items in EconPapers)
JEL-codes: C15 E47 E52 (search for similar items in EconPapers)
Pages: 26 pages
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac, nep-mon, nep-sea and nep-tra
Note: Type of Document - pdf; pages: 26
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0510009
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