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

  • Michael Funke

    ()

  • Michael Paetz

    ()

  • Qianying Chen,

    ()

Monetary policy in mainland China differs from conventional central bank- ing 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 pol- icy. This paper develops a New Keynesian DSGE model to captures China’s unconventional monetary policy toolkit. We find that credit quotas are impor- tant as the interest-rate corridor distorts the efficient reactions of the economy. Moreover, for China’s central bankers the choice of a particular monetary pol- icy tool or a the appropriate combination of instruments depends on the source of the shock.

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File URL: http://www.uni-hamburg.de/fachbereiche-einrichtungen/fb03/iwwt/makro/ChinaDSGE.pdf
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Paper provided by Hamburg University, Department of Economics in its series Quantitative Macroeconomics Working Papers with number 21207.

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Date of creation: Jul 2012
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Handle: RePEc:ham:qmwops:21207
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  1. Reinhart, Carmen M & Reinhart, Vincent R, 1999. "On the Use of Reserve Requirements in Dealing with Capital Flow Problems," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 27-54, January.
  2. Glocker, C. & Towbin, P., 2012. "Reserve Requirements for Price and Financial Stability - When Are They Effective?," Working papers 363, Banque de France.
  3. Tom Holden & Michael Paetz, 2012. "Efficient simulation of DSGE models with inequality constraints," School of Economics Discussion Papers 1612, School of Economics, University of Surrey.
  4. Holden, Tom, 2011. "Products, patents and productivity persistence: A DSGE model of endogenous growth," Dynare Working Papers 4, CEPREMAP.
  5. Laibson, David I. & Fuster, Andreas & Mendel, Brock, 2010. "Natural Expectations and Macroeconomic Fluctuations," Scholarly Articles 9938147, Harvard University Department of Economics.
  6. 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.
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