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| Financial Cycle and Monetary Policy |
| MA Yong, ZHANG Jinglan, CHEN Yulu
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| School of Finance / China Financial Policy Research Center, Renmin University of China |
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Abstract After the 2008 financial crisis, great efforts are made to reconstruct macroeconomic theory within the endogenous “real-financial” framework. Against this background, this paper attempts to construct a new macroeconomic model with endogenous financial cycle considerations, which provides a new model to analyze the relationship between financial cycle, business cycle and monetary policy. Empirical evidences from the Chinese economy show that: (1) Financial cycle has an important impact on the business cycle; (2) financial cycle chock has become an important source of macroeconomic volatility; (3) the finance-augmented Taylor rule is not only conducive to safeguarding the simultaneous stability of the financial system and the real economy, but also helpful for reducing the adverse shock from the financial system to the real economy.
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Published: 18 January 2018
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