Taylor Rule And Its Inspection

With the trend of marketization of our economy, the adjustment function of monetary policy to macroeconomic is more and more prominent. Still there are a lot of problems about how to adjust economy through monetary policy. For example, monetary policy is rule or discretion; monetary policy is only inflation target or many targets. There have been much debate at home and overseas. This paper started from the study of Taylor Rule, applied Taylor Rule to test our country's monetary policy, then got the conclusion that interest rate should be the monetary policy medium target.At the debate of rule or discretion, Taylor Rule was first proposed by John. B. Taylor (1993). He suggested that there exist corresponding relation between inflation and real equilibrium Federal fund interest rate when natural unemployment rate and potential output are given. That is to say, Federal Reserve can Accommodate interest rate to stabilize inflation and output gap. Taylor Rule provides theory foundation for American monetary Policy practice froml993, when U.S swerves to interest rate as its monetary policy medium target. Researchers and monetary authorities' attention are attracted by the success of U.S monetary policy recent years, so is the study of Taylor Rule.This paper organized as followings: Chapter one not only introduced the origin of Taylor Rule, Taylor Rule's basic model and its recent development, but also introduced related monetary policy rules and literature reviews on Taylor Rule at home and abroad. From Chapter two we began to analysis monetary policy in our country from reform and opening-up, obstacles facing and applicability of Taylor Rule in our country. Chapter three applied Taylor Rule's basic model from 1996 to 2008, and discovered the derivation of monetary policy in our country. The conclusion demonstrated that Taylor Rule could provide a benchmark for interest rate adjustment to macroeconomic. The results demonstrated output gap coefficients were more significant after importing exchange rate. Chapter four introduced Taylor Rule's limitations and improving directions. Finally, this paper estimated some advice about monetary policy for our country.This paper tried to start from the examination of Taylor Rule in our country, and answered some problems which monetary policy in our country faced and ways in future. Then, we can draw the conclusion that monetary policy medium target should shift from money supply to interest rate. But the weight should be given to money supply in monetary policy, should realize coordination of interest rate policy, money supply policy and exchange rate policy, avoid the conflicts of these policies, which would weaken the implementation effects of monetary policy to economy. Wish to do some profit to monetary policy operating target transformation and interest rate marketization.