Optimal Monetary Policy Rules in A Simple Stochastic Macro Model: China's Evidence
AbstractIn 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.
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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0510009.
Length: 26 pages
Date of creation: 08 Oct 2005
Date of revision:
Note: Type of Document - pdf; pages: 26
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Monetary Policy Rule; Loss Function; Stochastic Simulation; Policy Frontier; China;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-15 (All new papers)
- NEP-CBA-2005-10-15 (Central Banking)
- NEP-IFN-2005-10-15 (International Finance)
- NEP-MAC-2005-10-15 (Macroeconomics)
- NEP-MON-2005-10-15 (Monetary Economics)
- NEP-SEA-2005-10-15 (South East Asia)
- NEP-TRA-2005-10-15 (Transition Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bennett T. McCallum, 1997.
"Issues in the Design of Monetary Policy Rules,"
NBER Working Papers
6016, National Bureau of Economic Research, Inc.
- Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
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