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Market and Non-Market Monetary Policy Tools in a Calibrated DSGE Model for Mainland China

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  • Chen, Qianying

    ()
    (BOFIT)

  • Funke, Michael

    (BOFIT)

  • Paetz, Michael

    (BOFIT)

Abstract

Monetary policy in mainland China differs from conventional central banking in several respects. The central bank regulates retail lending and deposit rates, influences the credit supply via window guidance, and, in recent years has even used the required reserve ratio as a tool for fine-tuning monetary policy. This paper develops a New Keynesian DSGE model to captures China’s unconventional monetary policy toolkit. We find that credit quotas are important as the interest-rate corridor distorts the efficient reactions of the economy. Moreover, for China’s central bankers the choice of a particular monetary policy tool or a the appropriate combination of instruments depends on the source of the shock.

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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 16/2012.

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Length: 37 pages
Date of creation: 13 Jul 2012
Date of revision:
Handle: RePEc:hhs:bofitp:2012_016

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Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
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Web page: http://www.suomenpankki.fi/bofit_en/
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Keywords: DSGE models; monetary policy; China; macroprudential policy;

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  1. Christian Glocker & Pascal Towbin, 2012. "Reserve Requirements for Price and Financial Stability: When Are They Effective?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(1), pages 65-114, March.
  2. Tom Holden, 2010. "Products, patents and productivity persistence: A DSGE model of endogenous growth," Economics Series Working Papers 512, University of Oxford, Department of Economics.
  3. Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper 13703, University Library of Munich, Germany.
  4. Tom Holden & Michael Paetz, 2012. "Efficient Simulation of DSGE Models with Inequality Constraints," Quantitative Macroeconomics Working Papers 21207b, Hamburg University, Department of Economics.
  5. Mehrotra, Aaron & Nuutilainen, Riikka & Pääkkönen, Jenni, 2011. "Changing economic structures and impacts of shocks — evidence from a DSGE model for China," BOFIT Discussion Papers 5/2011, Bank of Finland, Institute for Economies in Transition.
  6. Andreas Fuster & David Laibson & Brock Mendel, 2010. "Natural Expectations and Macroeconomic Fluctuations," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 67-84, Fall.
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Cited by:
  1. Funke , Michael & Paetz , Michael, 2012. "Financial system reforms and China’s monetary policy framework: A DSGE-based assessment of initiatives and proposals," BOFIT Discussion Papers 30/2012, Bank of Finland, Institute for Economies in Transition.
  2. Kai Liu, 2014. "Dollar Hegemony and China’s Economy," Cambridge Working Papers in Economics 1410, Faculty of Economics, University of Cambridge.
  3. Bing Xu & Adrian van Rixtel & Michiel van Leuvensteijn, 2014. "Measuring bank competition in China: A comparison of new versus conventional approaches applied to loan markets," Banco de Espa�a Working Papers 1404, Banco de Espa�a.
  4. Tom Holden & Michael Paetz, 2012. "Efficient Simulation of DSGE Models with Inequality Constraints," Quantitative Macroeconomics Working Papers 21207b, Hamburg University, Department of Economics.

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