An International Comparison On Monetary Policy Rules

After the collapse of the Bretton Woods system which maintains a fixed exchange rate in early 1970s, central banks from all of the world have to take more responsibilities. The reality shows that discretion has much more flaws. So people begin to pay more attention to the study of monetary policy rules. This paper will discuss the application of monetary policy rules for China on the basis of some theories.First of all, the paper reviews some theories and empirical results of the monetary policy rules. Secondly, after the comparison of the implementation of monetary policy rules between the major developed countries and some Asian countries, by means of quantitative and qualitative analysis, it discusses the application of Taylor rule for China. The result turns out that the Taylor rule has made a very good description of China's monetary policy operation. It makes a good explanation that China has the condition to make the monetary policy which can follow the Taylor rule gradually.The innovations of this article are as follows: Firstly, it makes a comparison of the implementation of monetary policy rules among countries systematically, and points out the experience that China should learn. Secondly, during the study on testing the Taylor rule in China, the sample interval which has been chosen (1996 Q1-2006 Q3) avoids the empirical bias that occurred in previous research by the selected variables. It also estimates the potential output by using the HP method,which accounts for the non-stationarity of the time series.