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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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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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