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| Parameter Estimation of Optimal Monetary Policy Rule and Measurement of Money Conditions Index in China |
| LU Qianjin
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| Department of International Finance, Fudan University |
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Abstract In this paper, we proceed from macroeconomic general equilibrium model to examine the central bank monetary policy rule of macro-regulation between economic growth and inflation, incorporating the equity price and real estate price and analyzing the main factors affecting the parameter of the rule and potential mechanism. The empirical results show that the parameter of the optimal monetary policy of the Central Bank is 0.144055, the Central Bank's monetary policy operations lean against the wind, that is, the central bank gives a higher weight on inflation target in setting monetary policy, meanwhile monetary policy of China leans against real estate market, but with the stock market. Further, from the point of the optimal rule, this paper examines the weight of China's monetary conditions index, according to optimal monetary policy rule, the weight of the monetary conditions index is 0.302876, reflecting the interest rate increases by 1%, the equivalent of exchange rate decreasing by 0.30%, implying that the effects of interest rate changes are less than exchange rate changes.
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Received: 26 February 2015
Published: 12 April 2018
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