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Financial system reforms and China’s monetary policy framework: A DSGE-based assessment of initiatives and proposals

  • Funke , Michael



  • Paetz , Michael



This paper evaluates various financial system reform initiatives and proposals in China in a DSGE modelling setting. The key reform steps analysed include phasing out benchmark interest rates, deepening the direct finance market, reducing government’s quantity-based intervention on financial institutions. Our counterfactual model simulation results suggest that the reforms will be beneficial only, if Chinese monetary policy continues to rely on quantity-based interventions on financial institutions or tightens the interest rate rule.

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Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 30/2012.

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Length: 36 pages
Date of creation: 11 Dec 2012
Date of revision:
Handle: RePEc:hhs:bofitp:2012_030
Contact details of provider: Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
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  1. Chang, Tai Hsieh & Peter, J- Klenow, 2007. "Misallocation and manufacturing TFP in China and India," MPRA Paper 35084, University Library of Munich, Germany, revised 15 Jun 2007.
  2. 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.
  3. ZHENG, Tingguo & WANG, Xia & GUO, Huiming, 2012. "Estimating forward-looking rules for China's Monetary Policy: A regime-switching perspective," China Economic Review, Elsevier, vol. 23(1), pages 47-59.
  4. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  5. Michael Funke & Michael Paetz & Qianying Chen,, 2012. "Market and Non-Market Monetary Policy Tools in a Calibrated DSGE Model for Mainland China," Quantitative Macroeconomics Working Papers 21207, Hamburg University, Department of Economics.
  6. 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.
  7. Rotemberg, Julio J., 1996. "Prices, output, and hours: An empirical analysis based on a sticky price model," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 505-533, June.
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