Inflation Dynamics And The Effectiveness Of Monetary Policy Rules In China

More than 30 years ago,as Lucas pointed out,the only place where economists can perform experiments is economic models,and there is no prior theory or micro empirical evidence that can replace model to do policy experiments.The DSGE model provides a very important tool to policy analysis of macroeconomics,and also plays a key role in the process of policy evaluation.Prototypical pre-crisis dynamic stochastic general equilibrium models which built on the classis of the real business cycle model introduces nominal friction both in labor markets and goods markets.It broken up the theory of monetary policy inefficiency in RBC model.Therefore,DSGE model has been widely popular in the field of macroeconomics.When the New Keynesian DSGE model became the mainstream model in the macroscopic theoretical circle,the subprime crisis what originated in the United States had been broken out and quickly swept the world,and causing severe economic turbulence on the international scale and a great impact on the stable and orderly operation of the world economy.At this time,because the New Keynesian dynamic stochastic general equilibrium model did not predict the financial crisis,nor did it provide useful policy guidance to deal with the crisis,so the theoretical model was strongly criticized.As people gradually recovered from the panic of the financial crisis,the academic circle began to reflect on the inadequacy of the macroeconomics theory and its research framework before the crisis.Today,although the debate on the changes in macroeconomics caused by the financial crisis is still in the hot stage,it seems that most scholars agree that the reconstruction of the benchmark model should be considered.Since financial problems were the key to the financial crisis,how to integrate financial factors into the model has become a top priority.Excessive debt accumulation,whether by governments,banks,companies or consumers,often leads to very serious systemic risk.Along with the global economic integration,the financial system and tools of continuous innovation and progress of interest rate marketization,our country's macroeconomic cyclical volatility,trend,and the degree of convergence have taken place in the larger changes,along with China's capital account opening gradually,the footsteps of these changes are for the correlation between money supply regulation and macroeconomic is abate,the traditional quantitative monetary policy rules began to gradually lose their color,the original operation means and implement monetary policy tool is weakening,the effect of monetary policy to sell at a discount greatly,therefore,Which monetary policy rules are more applicable to China's special situation has become another issue to be studied in this paper.After the financial crisis on the introduction of financial factors in the model in the literature sprang up,at the same time for the reconstruction of the theoretical model is also made great progress,which is mainly manifested in these models to the outbreak of the financial crisis to give a reasonable explanation,however,a careful study can be found that whether the new Keynesian DSGE model reconstruction,or benchmark new Keynesian DSGE model,through the model is used to estimate the parameters,get the price of the viscous parameter values and micro empirical get the degree of price stickiness.When the benchmark New Keynesian DSGE model is used to fit the real inflation dynamics,a very high value of price stickiness parameter can be obtained through Bayesian estimation.This is because a model with high price stickiness produces a smooth new Keynesian Phillips curve,and only then can it perfectly fit real inflation dynamics.However,many microeconomic researchers have found through actual price data that although price stickiness exists,it is not so high.So does this problem mean that the New Keynesian DSGE model ignores other factors affecting inflation? If we use these theoretical models which are far from the real economy to analyze the influence of exogenous random shocks on the inflation dynamics,it is inevitable that there will be great problems.In order to solve the above problems,the benchmark New Keynesian DSGE model is expanded into a multi-stage New Keynesian DSGE model on the basis of reviewing the existing literature,and the final product inflation equation and intermediate product inflation equation are derived by using the optimization method.Among them,although the final goods inflation equation is also affected by the change of marginal cost,it can be seen from the marginal cost equation in Chapter 3 that this variable is affected by the change of intermediate goods price(PPI),thus affecting the final goods inflation.However,the marginal cost equation in the benchmark New Keynesian model can not reflect the impact of price changes of intermediate goods,so this expansion of the benchmark New Keynesian model is a major feature of this paper.Not only that,this article also used in the model in products' price shock instead of the final product price shocks,as products' price shock occurs,affected by the cost of the final product,in turn,affect the price of the final product,and the final product price shock is direct effects on the final product price,not response to the impact on the cost impact,therefore,the replacement will have very important effect on the model,but also reflects the price transmission mechanism.At the same time,in order to analyze the impact of financial factors on China's macro economy,this paper introduces the financial accelerator mechanism into the multi-stage New Keynesian DSGE model,and analyzes the effectiveness of China's monetary policy rules on this basis.Given the problems with the standard New Keynesian DSGE models,it is conceivable that policy analysis using these models will be more or less biased.Therefore,using the multi-stage New Keynesian model to study the applicability of China's monetary policy rules and the implementation effects of various policy instruments has become an important application of the multi-stage New Keynesian DSGE model constructed in this paper.With the integration of China's global economy,the continuous innovation of financial system and financial instruments and the acceleration of interest rate liberalization,the overall characteristics of China's macroeconomic fluctuations have changed a lot.At the same time,China is also constantly promoting the reform of capital account liberalization.All these policies and guidelines change has made the central bank by adjusting the money supply to achieve the effect of macro-economic control and regulation is becoming more and more not obvious,in other words,the quantitative monetary policy rules in our country has begun to gradually lose their color,China's central bank has been the use of monetary policy operation means its effectiveness has been weakened,not only that,the effects of policy implementation has also started to weaken.Therefore,which monetary policy rules are more suitable for China's special circumstances has become another issue to be studied in this paper.The main body of this paper includes four parts: The first part is about the development of New Keynesian DSGE before and after the crisis,the proposal of the problems and the relevant literature review.The second part build a model around the existing problems of the new Keynesian DSGE model.Firstly,starting from a simple multi-stage New Keynesian DSGE model,the rationality of the model constructed in this paper is compared and analyzed from two aspects: the estimated degree of price stickiness and the explanation of the dynamic performance of inflation.In the third part,the effects of financial frictions on inflation dynamics and the real economy are discussed in a multi-stage New Keynesian extended model with financial accelerator mechanism.The fourth part,based on the extended multi-stage new Keynesian DSGE model of monetary policy rules,the price should be taken to type at present quantitative monetary policy rules or mixed monetary policy rules are analyzed,especially the new coronavirus ravaged makes our country's economy suffered serious losses,many enterprises to cease to give,using the model analysis of what kind of monetary policy rules can faster economic recovery is particularly important.Finally,based on the above research results--intermediates with monetary policy will respond to price,and the products' price will be affected by marginal cost and affect inflation,has analyzed our country monetary policy rules should peg to the CPI and PPI inflation at the same time the influence of inflation,and that just the CPI inflation rate rather than monetary policy impact on PPI inflation,improper regulation problems may occur.The main conclusions of this paper:(1)based on multi-stage new Keynesian DSGE model to estimate the degree of price stickiness and micro empirical results almost consistent,which means that the price of multi-stage model does not need high viscosity can be very good fitting the actual inflation dynamics,the conclusion and the result of the standard new Keynesian DSGE models is very different;(2)By replacing the price shock of the final product in the standard model with the price shock of the intermediate product in the model,the change of marginal cost can be better captured both in the model and in the empirical results,which is more in line with the law of price transmission.The marginal cost will be kept in a relatively stable state due to the small fluctuation range of intermediate product price impact.(3)Although the monetary policy rule that pegged both CPI and PPI inflation rates will cause a small increase in output fluctuations,it is more conducive to maintaining the stability of inflation;(4)Although inflation targeting is not suitable for China at the present stage due to the problems of monetary policy transparency and interest rate marketization,keeping inflation stable has always been a potential goal of monetary policy regulation and control in China.Through the research of this paper,it is found that there is a potential dynamic inflation target in China,which plays a role in stabilizing inflation to some extent,and the impact of dynamic inflation target also causes the fluctuation of inflation in China to some extent.(5)Due to the existence of information asymmetry in the financial market,the agency cost has a counter-cyclical change,which amplifies the response of the economy to various exogenous shocks and has a certain impact on the stability of the macro economy;(6)Based on the multi-stage New Keynesian model,this paper makes a detailed analysis of which monetary policy rules are more suitable for China.The empirical results of the model show that,compared with the single monetary policy,China's central bank adopts the mixed rule of combining quantity and price,although it will cause a small fluctuation in the output level,it can achieve the purpose of stabilizing inflation more effectively.