Study On The Performance Of China’s Monetary Policy Rules Based On DSGE

China’s current monetary policy rules are mainly quantitative toolscomplemented by the price tools which are influenced by the marketization level ofChina’s interest rate. The western developed countries gradually transferred fromquantitative tools to price tools in1990s which effectively reduced the fluctuation ofmacro-economy and maintained a relatively low inflation rate. For a long time,China’s monetary policy uses its discretion obviously and easily leads toinconsistence of monetary policy practice. Then, it may cause economic fluctuationand communicate policy signal error to the public. The effectiveness of the currentmonetary policy tools has to face lots of challenges.As opening up to the outside world is deepening and domestic economicsituation is increasingly worsening, it’s a theoretical and realistic issue both urgentand important to design monetary policy rules which can both effectively reduce avariety of external shocks and maintain a high reputation under the uncertainty. Thisthesis mainly focuses on the following aspects:First, this thesis combs the historical evolution of China’s monetary policy rulesand divides it to three stages. Then, summarize the experience and lessons ofmonetary policy rules especially China’s monetary policy practice after theinternational financial crisis and put forward the necessity of changing thequantitative tools to price tools.Secondly, as to the newly quantitative study of monetary policy tools are mainlybased on traditional measurement method such as Cointegration, vectorautoregression model and mainly based on a closed economy model, this thesis buildDSGE model of open economy including family, manufacturers(final products andintermediate products), capital goods producers, entrepreneurs, financialintermediaries, and monetary authorities combined with the impact of openingeconomy. Its explicit modeling process and solid theoretical foundation can make themodel avoid the Lucas critique.Third, as to China’s commodity market and the labor market is not fullycompetitive and the credit friction exists, the thesis build DSGE model with a financial accelerator which takes both the price stickiness and wage stickiness intoaccount at the same time. It shows that the improved DSGE model consideringimperfect competition market and credit market can simulate the actual situationbetter.Finally, the model uses parameter calibration and Bayesian estimation method toestimate which makes the model have academic rigor and consistency. Then, comparethe tools of monetary policy rules from three aspects of the adjustment of monetarypolicy, the impact of exchange rate fluctuations, and welfare loss. The empiricalresults show that price tools can have a greater role in a shorter period of time and theeconomy will bear smaller inflation so as to realize the stable growth and lowinflation and the economy. The results shows that price tools are better thanquantitative tools. In the final, monetary authorities can promote the marketization ofinterest rate and exchange rate reform. interest rate rules of price tools can be builtand more price tools of monetary policy rules can be used actively.