The Effect Of Monetary Policy Of China

Monetary policy of Chian is one of monetary authorities’most important meansin macro-controlling,which has far-reaching significance to China’s economicdevelopment.However,the effects of monetary policy has been weakened for theexisting of liquidity constraints.This paper is about to building a New KeynesianDSGE model which contains liquidity constraints to describe the behaviors ofconsumers,manufacturers and the central bank.It is beneficial for central bank to makesome adjustments when developing monetary policy from the perspective of generalequilibrium.This paper based on the review and summarizes of the relevant literatureselecting China’s consumer and monetary policy-relevant data to analyzethem,knowing that Chinese residents suffering more severe liquidity constraints whichhas affected the implementation of the effects of monetary policy.Then,respectively,depicting a closed economy from the representative of consumers, manufacturers andthe the Central Bank,and build a New Keynesian DSGE model which adding aparameter of liquidity constraints.On this basis,log-linearized the model then solvingthe model to get the effects to the macroeconomics from the target inflation shock,themonetary policy shock and the technology shock.Moreover,comparing it with thesituation in the absence of constraint.The result shows that the existing of liquidityconstraints will weaken the effects of monetary policy.In the last,this paper makessome policy recommendations for reducing the liquidity constraints faced byconsumers.