A Study About The Effectiveness Of Generalized Price Index Targeted By Monetary Policy

This paper takes monetary policy to regulate the broad price target as the research object.From the existing literatures,some research conducted researches by building indexes including asset price fluctuations,such as FCI,into monetary policy rules.In this paper,it is found that there are few relevant literatures to study by constructing generalized price index including ordinary price and asset price and incorporating it into monetary policy rules.Based on the original Taylor rule respectively,we introduced financial conditions index FCI and the general price index GPI,building two different forms of monetary policy rules,and then on the basis of the use of threshold vector autoregressive model(TVAR),we test the effectiveness of two kinds of monetary policy rules in order to reach the purpose of make up for a lack of related research.This paper is based on theory and empirical analysis.The theoretical part is the analysis of the theoretical basis of monetary policy regulation of generalized prices and the construction of generalized price index model and monetary policy rule model.In this part,we start from the relationship between monetary policy and asset prices,centering on the origin and development of Taylor rule and contains the introduction of asset price volatility index MCI and FCI analysis,focusing on the change of Taylor rule equation and the importance of asset price index,so we can establish clear understanding of the necessity of the construction of generalized price index.After considering factors such as interest rate smoothing,this paper adopts two paths to construct new monetary policy rules: The first is to take FCI into the revised Taylor rule to construct thefirst new Taylor rule;The second is to use the generalized price GPI index to replace the inflation index in the revised Taylor rule to construct the second new Taylor rule,so as to facilitate the later empirical comparison.By comparing the effectiveness of Taylor's rule including generalized price and FCI index,the corresponding analysis conclusion is obtained.In the empirical part,this paper adopted the relevant monthly data from January 2005 to July 2018,and adjusted the price factor and seasonal factor.At first,this paper respectively use vector autoregressive(VAR)model to build FCI which reflecting asset pricesindex and the general price index GPI which reflecting the level of China's overall price level.Then we choose the suitable index which suits the reality,using FCI as the threshold vector of the first kind of monetary policy rules and GPI as threshold vector of the second monetary policy rules,using various variables to impact interest rate,output,inflation,asset prices and other factors.By comparing the impact of variables under the two monetary policy rules,it is concluded that the Taylor rule including the generalized price index GPI is more effective.Finally,based on the above analysis,this paper draws a conclusion that monetary policy is more effective than previous regulation after the inclusion of the generalized price index,thus putting forward Suggestions on establishing the optimal monetary policy rules,including the generalized price index into the regulatory target and improving the compilation and compilation of the generalized price index.