The Effectiveness Evaluation Of China’s Monetary Policy Rules

The monetary policy rules of Central Bank are benefit to guide the rapid and stable development of the economy. For the frequently varied operation of the monetary policy rules, the scholars have disputable views about the effectiveness of the different rules, thus it has important practical significance to evaluate the effectiveness of the different rules. The article evaluated the effectiveness of money supply rule, interest rate rule and the mixed rule which considered the monetary growth rate on interest rate rule based on the method of dynamic stochastic general equilibrium (DSGE).In the same economic system, when the Central Bank’s monetary policy changes, the dynamic parameters estimated on the Bayesian technology have significant differences, which lead to the dynamic optimization path of the endogenous variable in the economic system changed, as well as the effects of all kinds of exogenous shocks to the economic system, these changes directly lead to the differences of the operation effectiveness under different monetary policy rules. Base on the parameters estimation result in Bayesian technology, the article carried on the evaluation to the effectiveness of different monetary policy rules, which based on five perspectives including simulation test, transmission mechanism, impulse response, variance decomposition and welfare measure. The study shows that in three kinds of monetary policy rules, the simulate economy system has a better simulation on the variables locating at the beginning or the end of the monetary policy transmission process, while a poorer simulation on the variables locating in the middle. In the monetary policy transmission process, the mixed rule forms a closed loop among interest rate, consumption and the money demanded, strengthening the effect of the monetary policy shock to the economy, which directly shows the mixed rule a strong and short influence to the economy, on the country, the money supply rule mild and relatively long, and the interest rate rule having influence on the capital market and the price system. On the whole, the most economic variables under the mixed rule have the similar reaction to the monetary policy shocks like the interest rate rule in the beginning, while having the similar damping characteristic like the money supply rule when returning to the steady state in the end. From the point of view of variance decomposition, the mixed rule has magnified the effect of the technology shock to the economic system’s cycle fluctuation, while weakened the effect of the monetary demand shock. In addition, the money supply rule makes the maximum social welfare loss due to the persistent volatility.