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Monetary Policy Rules Theory and Its Application in China

Author: WeiBangRong
Tutor: YangYuSheng
School: Liaoning University
Course: History of Economic Thought
Keywords: Monetary Policy Rules Target Rules Tools Rules Discretion Inflation targeting Taylor rule Monetary policy framework
CLC: F822.0
Type: PhD thesis
Year: 2010
Downloads: 880
Quote: 3
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Abstract

In the field of monetary policy, the debate between the rules and the discretionary, has a long history. Theoretical research since the 1970s, monetary policy rules has made the breakthrough, especially dynamic inconsistency theory proposed, to make people aware of discretionary monetary policy is easy to cause time inconsistency and inflation bias. In the 1990s, monetary policy rules important advances in the theoretical and practical aspects of performance: Taylor (1993) Taylor rule interest rates as a policy tool, the 1990 New Zealand has taken the lead in implementing the monetary policy of inflation targeting world, represented by Svensson et economist inflation targeting, a more in-depth theoretical studies, all of which have greatly promoted the theory of monetary policy rules. Since the adoption of inflation targeting in New Zealand, many countries have adopted a new monetary policy framework, monetary policy operations with regularity factors, the implementation of monetary policy, for the successful control of inflation in these countries to achieve macroeconomic The stable has an extremely important role. Since 1984 to fulfill the functions of the Central Bank of the People's Bank of China, China's monetary policy operations has the characteristics of discretionary macroeconomic in alternating hot and cold, and macroeconomic often faced with the threat of instability. From the mid-1990s onwards, China began to implement the money supply as the intermediate target of monetary policy framework, the growing importance of the money supply in the macro-control. However, the practice of monetary policy in recent years show that the stability of the relationship between the money supply indicators, with the ultimate goal of monetary policy is in decline, the Central Bank is more and more difficult to control the money supply, money supply endogenous enhanced the effectiveness of the central bank to control the money supply in order to achieve the objectives of monetary policy are falling, there is an urgent need to adjust and improve the current monetary policy framework. Prone to dynamic inconsistency and inflation bias due to discretionary monetary policy, therefore, is particularly necessary for the monetary policy framework introduced rules. During the design of the monetary policy framework, need to figure out the problem: the type of monetary policy rule? Every type of monetary policy rules applicable conditions? Its practical effect? ??Our current monetary policy framework effectively ? If our current monetary policy framework inefficient, then in the future monetary policy framework selection, should be considered to choose what kind of monetary policy rules? precisely this article need to study the problem. The main content of this paper as follows: Introduction part describes the research background and significance of a more comprehensive overview of the research on domestic and international monetary policy rules, briefly the main content of the thesis and research methods, pointed out that the The main innovation of the paper and insufficient. Chapter 1 gives the concept of the rule of monetary policy, and monetary policy rules classified, especially goal rule with the tools rules introduced in detail. Tools rules include not only the traditional rules, such as the Taylor rule, McCallum Rules, the Friedman rule, Melzer rules, and to include non-traditional rules, such as the exchange rate rules and monetary conditions index. The target rules involving inflation targeting rules, the price level target rules, the rules of the money growth target, nominal GDP targeting rules, the rules of the exchange rate target and inflation - the price level mixed target rules. Chapter 2 is the starting point of the study of the theory of monetary policy rules, Generally speaking, there are two modes of operation of monetary policy, one based on rules, one is a discretionary manner, Which is preferable? In this regard, the academic community has been a long debate. The dynamic inconsistency theory suggested that the end of a long-standing dispute between the rules and discretionary. The theory is that discretionary monetary policy easily lead to time inconsistency and inflation bias. Barro and Gordon's study further prove the rules better than discretionary; addition to the regularity of monetary policy in theory, there are many other options to choose from in order to overcome the tendency of the monetary policy of inflation, such as the reputation constraints Employment conservative central bank home monetary policy operations, Disclaimer principal-agent design optimal incentive contracts, and the implementation of inflation targeting. Chapter 3, respectively, from the perspective of the graphics and mathematical model of monetary policy tools to select theoretical analysis, the study suggests that the choice of the interest rate and the amount of money depends on the stability of the IS and LM curves. For the derivation of the famous tool Rules Taylor rule, using the two methods, the Taylor rule derived from the point of view of the quantity theory of money, the second is to be derived from the point of view of dynamic macroeconomic models. Since Taylor of the Taylor rule, economists widely used empirical analysis and policy evaluation Taylor rule of monetary policy of the country, while the Taylor rule to revise and expand. Empirical aspects of the application of the Taylor rule, were analyzed from the following aspects: the application of the Taylor rule in the developed economies; application of the Taylor rule in the emerging market economies; Taylor rule in China. Chapter 4 main rules of the most popular target: inflation targeting. The main contents include the connotation and characteristics of inflation targeting, the prerequisite for the implementation of inflation targeting, inflation targeting on macroeconomic effects. Price level targeting and nominal income targeting two goals rule in recent years become increasingly apparent in the theoretical study of the importance of foreign attention in recent years, these two goals rules growing body of literature, foreign literature study based on inflation targeting two goals rule comparisons summarized. Chapter 5 an empirical analysis of the effectiveness of our current monetary policy framework, the researchers believe that the effectiveness of the current monetary policy framework in decline, it is necessary to carry out the reform and improvement of the current monetary policy framework, it is recommended that the reform of China's future monetary policy framework The direction is to shift to inflation targeting. The innovation of this paper is mainly reflected in: First, the use of time-varying parameter model estimated that China's monetary policy reaction function. Major domestic use of the same parameters of the Taylor rule on China's currency policy test. China is in a developing country in transition, the central bank's monetary policy objectives in the adjustment of the change in the monetary policy framework in the progressive adjustments, the central bank's reaction to changes in macroeconomic variables over time Taylor rule changes and changes in the Taylor rule using the same parameters may not be appropriate to estimate the monetary policy reaction function, therefore, the article uses the state space model and Kalman filter estimates the time-varying parameters may be more in line with China's actual . Second, the use of smooth transition regression model to estimate the nonlinear Taylor rule. The existing literature, most of the Chinese central bank's reaction function is estimated using a linear Taylor rule. In fact, the central bank in the face of inflationary pressures and economic growth environment, the reaction to macroeconomic variables may be different, the linear rule difficult for this case to be portrayed. In this paper, smooth transition regression models to test that China's central bank monetary policy reaction function of the central bank's monetary policy has a non-linear characteristics. Third, inflation targeting and other goals rule induction. Domestic existing literature on target rules focused on the introduction of inflation targeting. The other two goals rule, the price level targeting and nominal GDP targeting is not in practice be applied, but it has important theoretical research value. Is growing interest abroad in recent years, these two goals rule. In this paper, on the basis of the existing foreign literature study, the comparison between inflation targeting and price level targeting and nominal income targeting two goals rule to give a presentation to cause domestic academia these two goals rule research attention.

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