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A DSGE Model for China’s Monetary and Macroprudential Policies

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  • Sinclair, Peter
  • Sun, Lixn

Abstract

This paper develops a calibrated DSGE model for simulating China’s monetary policy and macroprudential policy. The empirical results show, first, that the interest rate is a better instrument for China’s monetary policy than the required reserve ratio when the central bank is solely concerned by the price stability; second, that the loan-to-value (LTV) ratio is a very useful macroprudential tool for China’s financial stability, and the required reserve ratio could be used as an instrument for both objectives. Whether macroprudential policy complements or conflicts with monetary policy depends upon the instruments choices of two policies. Our policy experiments suggest three combination choices of instruments for China’s monetary and macroprudential policies.

Suggested Citation

  • Sinclair, Peter & Sun, Lixn, 2014. "A DSGE Model for China’s Monetary and Macroprudential Policies," MPRA Paper 62580, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:62580
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    References listed on IDEAS

    as
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    4. Chadha, Jagjit S. & Corrado, Luisa, 2012. "Macro-prudential policy on liquidity: What does a DSGE model tell us?," Journal of Economics and Business, Elsevier, vol. 64(1), pages 37-62.
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    More about this item

    Keywords

    DSGE Model; Monetary Policy; Macroprudental Policy; China’s Economy;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G1 - Financial Economics - - General Financial Markets

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