The Choice Of Optimal Monetary Policy Tools Together With Macro-prudential Management -under The Framework Of DSGE

Upon the extensive reading of analyzing of existing literature on the topic of how to characterize the economical system by virtue of the analytic method of dynamic stochastic general equilibrium model (DSGE model) both in the domestic content and abroad, this paper concludes the pattern of existing method, and features its advantage compared with the other conventional econometrical analytical methods. Meanwhile the paper also summarizes the research hotspot on the issue of systemic risk before and after the latest financial crisis, combined with the up-to-date development and evolution of related issue with respect to the concept of macro-prudential regulation. Then the research focus is targeted at the relationship between the macro-prudential policy and monetary policy.The traditional econometrical methods often lack a solid micro-foundation while, on the contrarary, the method of DSGE model can effectively solves this problem thanks to the consistency of its theoretical framework. It has gradually replaced the role of traditional econometrical methods in the study of macroeconomic issues in recent decades and has become one of major tools used by the authorities and policy researchers when analyzing the macro-economic issue. One of the major concerns that need to be addressed when using this model is how to portray each sector of the economy and how to include a variety of shocks and friction prevalent within the real economical activities in the model’s content. With regard to this, the paper incorporates an array of such shocks and friction into the capital market, labor market and the final product market while absorbing the helpful ideas of empirical analysis on featuring the pattern of adjustment cost, price stickiness, wage stickiness, monopolistic competitive environment and a range of other economic variables. Upon this, the paper fits and analyzes economical development of our country, and makes a robust test of the conclusions.Under the framework of DSGE model, the joint effects of monetary policy tools and macro-prudential regulatory instruments are fitted and analyzed. Empirical results show that the monetary policy tools alone exhibit good regulatory capacity over a certain type of economic variables, but falls short of ensuring the steady state of some other aspects of the economic systems. While macro-prudential policy tools have unique advantages over controlling of the volatility in financial markets and maintaining a stable growth in the credit market. However, if it works independently with respect to the monetary policy tools, its ultimate effect is not satisfying. The optimal policy arrangement is to coordinate the objectives and goals of these two policies, give full play to their different advantages in their, respective areas, so that the two policies can complement each other, and function synergistically to achieve their policy objectives when regulating and promoting both the economical and the financial system.