Research On Optimal Monetary Policy Rule Theory And Application

Optimal monetary policy rule theory provides an analysizing framework for evaluating alternative monetary policy by compairing their equilibrium result. According to the literature, this dissertation classifies it as traditional framework and modern framework.Since the later 1990s, New Keynesian models (or named as New Neoclassical Synthesis models) has been the standard monetary policy analyzing framework. These models build on a dynamic stochastic general equilibrium framework based on optimizing behavior, combined with some form of nominal stickiness. This approach not only enlarges the monetary policy theory, also makes the method in analyzing monetary policy be consistent with other macroeconomic fields such as economic growth, public financial policy. New Keynesian Phillips curve (hereafter NKPc) reflects the advantagement of this framework, whick is named in this dissertation as modern monetary policy analyzing framework. NKPc has strict microeconomic foundation, which is consistent with the development of macroeconomics, and therefore the parameters can be estimated by calibration method. NKPc introduces nominal wage and/or price stickiness into DSGE model, and therefore successfully explains the cost of inflation and provides the theoretical foundations for inflation targeting. NKPc cotains expectations of future variables, and therefore can study the effect of systemic or predictable monetary policy, which affect real output by affecting private economic agencies' forward-looking expectation. The forward-looking characteristic not only makes the analyses more consistent with monetary policy practice, but also gives reasons for expectation management in implementing monetary policy, and expounds the stabilization bias of discretion policy. All of these show the advantagement of policy rule.In contrast with modern framework, monetary policy analysis in the 1970s, 1980s and early 1990s generally used Lucas supply curve. We name these models as traditional framework. In traditional framework, it is simple to analyze the dynamic inconsistent problem and inflation bias under discretion.This dissertation consists of three sections. In the first section, it provides an overview of the optimal monetary policy rule theory, and illuminates the essence of monetary policy rule by examining the optimization in different monetary policy operation manners, by distinguishing between rule's imperfection and discretion's flexibleness, by illuministing the rule's general form in foreword-looking model. In the second section, it examines the inflation targeting in practice and provides theorical foundations for this regime from optimal monetary policy rule theory. Thisdissertation especially examines inflation targeting regime's contain-ability and modernity. On the one hand, inflation targeting can be figured as a general monetary policy analyzing framework, whick is applicable to all monetary policy regimes, on the other hand, inflation targeting can be figured as a modern monetary policy regime which is consistent with modern market economic system and modern financial system. The contain-ability of this regime means that it is applicable to analyze China's monetary policy in this framework, and the modernity of this regime means that it is difficult for China to adopt this regime in practice. In the last section, this dissertation examines the reference value of optimal monetary policy rule theory and inflation targeting experience for China's monetary policy implement and research. This section firstly examines the limitation of applying New Keynesian framework mechanically and analyzes the optimal equilibrium response of output, inflation and monetary aggregate to shocks based on a back-looking model estimated by VAR method. Then according to the modernity of inflation targeting, this dissertation assumes inflation targeting to be a goal regime, and points out that it not only needs central bank institutional innovation, but also needs government management system reform and financial system reform to achieve this regime. According to the cotain-ability of inflation targeting, this dissertation assume China adopted inflation targeting today and discuss the issue of how to implement this regime in a transformation economy. Especially, it constructs a multi-industry optimizing model considering the imbalance of economics and shows that the central bank should stabilize an optimal inflation index in which the weight of each industry depends on the degree of its nominal stickiness, the volatility of its idiosyncratic shock and the sensitivity of its economic activity to the whole economy.The study of this disseration is primary and non-systematical. With the developing of central bank practice and the applying of new macroeconomic methods, there will be remarkable improvement in the research on monetary policy operation and central bank regime. China is a transition economy and there will be more new practice problemes facing the theory research. It is important to analyze China's monetary policy practice in new theory framework and by new analyzing method.