Market and Non-Market Monetary Policy Tools in a Calibrated DSGE Model for Mainland China

37 Pages Posted: 18 Jul 2012

See all articles by Qianying Chen

Qianying Chen

International Monetary Fund (IMF) - Monetary and Capital Markets Department

Michael Funke

University of Hamburg - Department of Economics; Tallinn University of Technology (TUT)

Michael Paetz

University of Hamburg

Date Written: July 13, 2012

Abstract

Monetary policy in mainland China differs from conventional central banking in several respects. The central bank regulates retail lending and deposit rates, influences the credit supply via window guidance, and, in recent years has even used the required reserve ratio as a tool for fine-tuning monetary policy. This paper develops a New Keynesian DSGE model to captures China’s unconventional monetary policy toolkit. We find that credit quotas are important as the interest-rate corridor distorts the efficient reactions of the economy. Moreover, for China’s central bankers the choice of a particular monetary policy tool or a the appropriate combination of instruments depends on the source of the shock.

Keywords: DSGE models, monetary policy, China, macroprudential policy

JEL Classification: E42, E52, E58

Suggested Citation

Chen, Qianying and Funke, Michael and Paetz, Michael, Market and Non-Market Monetary Policy Tools in a Calibrated DSGE Model for Mainland China (July 13, 2012). BOFIT Discussion Paper No. 16/2012, Available at SSRN: https://ssrn.com/abstract=2111064 or http://dx.doi.org/10.2139/ssrn.2111064

Qianying Chen

International Monetary Fund (IMF) - Monetary and Capital Markets Department ( email )

United States
1-202-623-6633 (Phone)

Michael Funke (Contact Author)

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
room 2128 C rise
Hamburg, 20146
Germany

Tallinn University of Technology (TUT) ( email )

Ehitajate tee 5
Tallinn, 12618
Estonia

Michael Paetz

University of Hamburg ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

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