The Independent Monetary Policy under the Fixed Exchange Regime
Using a macro-econometric model that is specified for the current Chinese economy, we investigate the performance of monetary policy in China with the assumption (which anyway will occur in the near future) that capital market was opened. Our purpose is to find how the monetary authority should response to a variety of external shocks by applying different policy tools (including required reserve ratio, buying and selling foreign exchange, the open market operation, the discount rate among others) while keeping the exchange rate within a designed regime. The Monte Carlo simulation will be used to evaluate the effectiveness of such policy reactions.
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