Research On New Keynesian Monetary Policy Theory

The theory of New Keynesian economics on monetary policy is the essence of New Keynesian economics,who insists that "optimal monetary policy" is not only demonstrated in theory but also used by many countries'monetary policy setting so far.New Keynesian economics,from the perspective of rational expectation,proposed that monetary policy is non-neutrality by explaining the existence of price/wage stickiness.Firstly,this paper systematacially states the source and development of New Keynesian economics,and presents the basic frame of monetary policy.Specially,this frame can be used to demonstrates that strict inflation targeting is the optimal monetary policy,and it advocates that central banks should take the entirely stable price as its target when responds exogenous shocks.Secondly,from the perspective of the history of economic thought,this paper presents the inheritance and development of New Keynesian economics from Keynesian economics and New Classical Macroeconomics,and compared the differences between them,through which states the history of the theory of New Keynesian economics on monetary policy.Thirdly,in the point of monetary policy in practice,this paper discusses four features of inflation targeting—"the first target of stabilizing pricing","publishing the specific value of inflation target","forward looking"and "transparency",by which presents the effects of inflation targeting in eastern countries,and this paper concludes the inspirations and references.Finally,this paper teases out the history of China's monetary policy since 1984,and proposed the uselessness of targeting rules of interest rate and monetary supply in China.Further,this paper presents the good prospect of inflation targeting in China and offer some suggestions for China's central bank.