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A New Keynesian Model for Analysing Monetary Policy in Mainland China

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Author Info
Li-gang Liu (Research Department, Hong Kong Monetary Authority)
Wenlang Zhang (Research Department, Hong Kong Monetary Authority)
Abstract

This paper adopts a three-equation New Keynesian model to evaluate the appropriateness of China's monetary policy framework. Our simulation results show that a hybrid rule that relies on both interest rate and quantity of money to conduct monetary policy appears to be more suitable than its alternatives at the current stage of economic and financial market development. Our simulation results also show that a sharp appreciation of the renminbi exchange rate would be disruptive to the inflation and output processes of the economy, despite its effectiveness in curbing inflation.

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File URL: http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP07_18_full.pdf
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Publisher Info
Paper provided by Hong Kong Monetary Authority in its series Working Papers with number 0718.

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Length: 26 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:hkg:wpaper:0718

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Related research
Keywords: Monetary Policy Rule; New Keynesian Model; China;

Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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