An Analysis Of The Applicability Of Taylor Rule In China And Some Modification

In recent years. China is experiencing some kind of transformation that was ever experienced by many western developed countries—the amount of monetary supply is becoming increasingly difficult to control and measure while the marketization of the interest rate goes deeper and further. It can be expected that interest rate will no doubtedly play an more and more important role in the control of macro-economic performance,even if it doesn't become the intermediate target of monetary policy in the near future .It is a trend with the further development of the economy and finance .Thus to use some kind of rule as the guideline for making interest-rate policy is of necessity. Under this situation,to analyse the applicability of Taylor rule and its various kinds of modified forms in China will be of great sense and this would be a forward-looking work. However,compared with the broad and profound researches done all over the world,the study of the applicability of Taylor rule and its various kinds of transformation in China has just started yet,and most of the researches concentrate on how to use some kind of Taylor-type rule to explain the historical track of some interest rate in China .As far as I am concerned ,this is inappropriate since the central bank may have not use any kind of a Taylor-type rule as a guideline for its interest rate adjustment at all. Thus,this paper tries to apply Taylor rule to China from an entirely new angle: to establish a simple macroeconomic model and to test the effect of the original Taylor rule and its modified forms on the performance of the macro—economy in China .And that is the main innovation here.This paper is constituted with four sections :the first section gives a brief review on researches done in the past 15 years ,including the form of the original rule ,its theoretical basis ,its development and application in China and abroad ;the second section comments on the development of the monetary policy in China and then points out some conditions already existing in China for the application of the rules; the third section introduces a macroeconomic model and the rule and some transformation using in this paper and then tests these rules' effect on the performance of macroeconomy; the fourth section concludes this paper and suggests some aspects that can be improved for further research.