This study attempts to sort out some important changes in the philosophy of global financial management that emerged after the international financial crisis. It focuses on the theoretical basis and intrinsic logic of the two-pillar macro-management framework that combines monetary policy with macroprudential policy.
   In the aftermath of the 2008 international financial crisis, the importance of financial stability in the central bank's policy framework has once again been recognized, and together with a currency stability target, it has become part of the central bank's “double-target” policy portfolio. The policy objectives of the central bank have gone through a process of negation and spiraling.
   Changes in policy objectives require the optimization and improvement of the policy toolbox. In this case, there are multiple options. One is to strengthen the original monetary policy's function and incorporate financial stability responsibilities into the traditional monetary policy framework, for example by focusing on overall price stability in a broader sense including asset prices. However, in the current situation, there are obvious shortcomings to relying solely on monetary policy to maintain financial stability and prevent systemic risks. Based on the consensus of a range of economists after the crisis, to manage and prevent systemic risks and maintain financial stability, it is necessary to strengthen the macroprudential policy framework.
   Monetary policy and macroprudential policy have different focuses; however, they do not operate separately, but are interactive. When they are coordinated, they can form a synergy; this is the basis of the “two-pillar” framework. China has proposed and is now improving a two-pillar macro-management framework that combines monetary policy and macroprudential policy; this is an important achievement that reflects the lessons of the international financial crisis. The two-pillar framework is an important theoretical and practical innovation that addresses China's national conditions. In our opinion, the two-pillar framework is an indication that monetary policy and macroprudential policy are both indispensable for fulfilling the target portfolio of currency and financial stability. Monetary policy cannot replace macroprudential policy, and vice versa. They are like the two pillars supporting a bridge: although their respective positions and forces are different, they are both indispensable. Moreover, the two pillars may be equally important. It is also possible that one of them will be more important for a certain period, while the other will play a supporting role. As the situation and the focus of policy objectives change, the relative importance of the pillars may vary. However, both pillars are essential, and the fundamental policy framework of two pillars supporting double targets should remain constant. Many studies have discussed the theoretical foundations of a two-pillar framework or studied the coordination of monetary policy and macroprudential policy. In practice, although some central banks have not explicitly proposed a two-pillar concept, their policy frameworks have essentially adopted the basic characteristics of the two-pillar framework: combining monetary policy and macroprudential policy.
   The People's Bank of China has persistently focused on the coordination of monetary policy and macroprudential policy. For example, when there are large-scale international twin surpluses, the liquidity of the banking system is raised above the appropriate level, and window guidance and other policy tools with macroprudential attributes are used to curb excessive growth in credit while promoting the stability of banks. In the transitional stage of the monetary policy framework, it is difficult to fully control credit expansion using only interest rates, as they are subject to various factors and there are many interest rate insensitive entities. In such cases, it is necessary to apply macroprudential policy measures. Generally, the effective coordination of monetary policy and macroprudential policy has enabled China to better cope with challenging internal and external situations and to create a moderate monetary and financial environment for economic restructuring and reform, while preventing systemic risk and promoting the sustainable development of the Chinese economy. In the next stage, the two-pillar macro-management framework can be strengthened by further improving the macroprudential policy framework and coordination mechanisms.

As a collective reflection on and policy response to the 2008 international financial crisis, policy makers around the world have formally adopted macro-prudential policy with the objective of developing a new type of policy tool that complements traditional monetary policy while directly reducing financial risks and promoting financial stability. The introduction of macro-prudential policy to central banks' policy frameworks as a new tool for macro financial adjustment has gradually shifted the traditional “one-pillar” adjustment framework based solely on monetary policy to a “two-pillar” adjustment framework underpinned by both monetary and macro-prudential policies.
   Based on the essential logic of basic facts, basic theories, and basic practices, this study comprehensively explains the necessity, theoretical rationale, and practical feasibility of the two-pillar adjustment from three major perspectives, and further clarifies its actual foundation, practical implementation, and future improvements in China. The findings show that the two-pillar adjustment framework has both real world and theoretical foundations. First, financial stability has a notable impact on macroeconomic stability, but traditional monetary policies are unable to effectively achieve financial stability. According to “Dingbergen's Law” and the principle of policy comparative advantage, it is necessary to construct a new “policy pillar” (i.e., macro-prudential policy) to achieve the objective of financial stability. Second, given the deep integration and mutual influence between financial policy and the real economy, the traditional monetary policy pillar and the new macro-prudential policy pillar should be thoroughly coordinated and combined within a unified framework to improve the effectiveness and efficiency of policy implementation and to avoid policy conflicts and frictions. In addition, because the dynamics of the real economic and financial cycles are complex, the policy tools under the two-pillar adjustment framework (including both the monetary policy tools and the macro-prudential policy tools) should be adequate and complete enough to improve the accuracy, pertinence, and flexibility of policy implementation.
   Drawing on the current two-pillar adjustment practices in major countries around the world, we focus on the three core issues of policy objective, policy tools, and policy coordination and consider how to form stable and reliable policy rules and a mature operational framework. First, to address the policy objective issue, we ask the following question: if the final goal of macro-prudential policy is financial stability, what specific target objectives should be used？ Without clear targets, the randomness of policy operations will increase, leading to instability in policy making and practices, resulting in less effective policy implementation. A literature review suggests that monitoring and judging activities could be improved by the construction of structural indices, as financial stability is affected by both aggregate and structural imbalances. Second, previous studies have shown that different macro-prudential policy tools influence financial stability through different paths and transmission mechanisms. Furthermore, under different structural imbalances, different tools have comparative advantages, so policy makers should consider constructing an “objective oriented” policy tool guide that reflects accumulated experience and further strengthens the pertinence, reliability, and effectiveness of the policy tools chosen for specific objectives and conditions. Third, one of the core aims in perfecting the two-pillar adjustment framework is to improve the coordination between monetary policy and macro-prudential policy. The rules and institutions must effectively deal with deviations and conflicts between the two basic goals of price (economic) stability and financial stability. They can also use the flexible configuration of multi tools to address long-term and global goals, thus improving the pertinence, flexibility, and effectiveness of policy implementation.
   Finally, in the long run, the “two-pillar” adjustment framework should maintain a certain degree of openness and compatibility during the process of development, so that it can gradually achieve more unified and system-based coordination with a broad range of economic and financial policies.

The international financial crisis in 2008 had a profound impact on global economic and financial systems and also posed a major challenge to financial supervision and macro policy frameworks. This launched wide-ranging theoretical and practical discussions and reflections, which concluded that the complex relationships between financial institutions, high leverage and shadow banking problems, underestimation of liquidity risk, financial procyclicality, and the lack of effective mechanisms to deal with systemically important institutions are all important reasons for the failure of regulatory authorities to effectively identify and resolve systemic risks. Traditional micro supervision and monetary policy cannot guarantee the overall stability of the financial system; it is necessary to develop macro-prudential policies to deal with system risks. After the 2008 crisis, this recognition promoted the reform of macro policy and financial supervision systems.
   Macro-prudential policy is rapidly developing. Not only are the policy objectives clearer and the types of tools more standardized, but there has also been constant improvement in the relevant theoretical frameworks. As a new policy framework formed after the 2008 crisis, the effectiveness of macro-prudential tools, mechanisms, and policy frameworks needs further study, as does the relationship between macro-prudential policy and monetary policy. In particular, it is necessary to study how to apply the new theories to the design of macro-prudential system frameworks in different economic and institutional environments. Important practical tasks are to strengthen the coordination between monetary policy and macro-prudential policy and enhance the policy effect of the “two pillars.” How can we draw on successful international experience and practice, and establish a suitable macro-prudential policy framework？ These questions have become the focus of theoretical research and policy practice. In the Chinese setting, systematic risk identification, monitoring, and analysis are complex and difficult tasks, and more detailed and in-depth studies of macro-prudential policies are required. Within the institutional framework, the relationship between macro-prudential policy and monetary policy, and how to reasonably design a policy-making framework, have become the key issues.
   First, we systematically review the theoretical basis, policy objectives, and tools of macro-prudential policy. Second, we analyze the relationship between macro-prudential policy and monetary policy with reference to three important aspects of the relationship between the two types of policies. Third, we systematically examine the Bank of England in terms of organizational structure design, monetary policy framework reform, and financial policy framework design. Focusing on the reform of its monetary policy and macro-prudential policy framework, we examine how the Bank of England could better integrate theoretical development and institutional design. Finally, the study offers some policy suggestions for the development of macro-prudential policy in China.
   This study has a number of policy implications. (1) Policy makers should clarify the independent decision-making modes of macro-prudential policy and monetary policy. On this basis, we can establish strategies, objectives, tools, and operating rules for macro-prudential policy and a comprehensive and systematic financial risk analysis system that will have the advantages of a central bank in terms of macro-economic analysis and policy making. (2) Policy makers should integrate and standardize the existing macro-prudential policy tools and add counter cyclical capital requirements and counter cyclical leverage constraints into the macro-prudential policy toolbox as soon as possible. (3) Policy makers should further promote the integration of financial statistical data, establish a set of core indicators of systematic risk at different levels, strengthen the unified monitoring of systematic risk, and form an intermediate goal for macro-prudential policy development. (4) Methodologically, policy makers should speed up the establishment of China's systematic risk model, correctly evaluate the role of stress testing in macro-prudential policy-making, and coordinate the implementation of stress testing. (5) A standardized mechanism for communication and information release should be established to actively guide market expectations. (6) It is important to strengthen the integration of institutions and departments in the “before, during and after” phases of systematic risk response, and promote the coordination of monetary policy and macro-prudential policy. At the same time, we should promote the use of technology for the mutual verification and complementarity of our macroeconomic and system risk models.

In this paper, we discuss the interaction between monetary policy and macroprudential policy from both theoretical and practical perspectives based on a literature review, identify the problems and challenges facing the current “twin-pillar” regulatory framework in China and propose a number of reform measures. While monetary policies affect financial stability through the risk-taking channel, macroprudential polices affect price stability and output. Recent studies suggest that, depending on the types of shocks and parameter calibrations, monetary policy instruments and macroprudential instruments are either substitutes for each other, or complementary to each other.
   It has been shown in the literature that under conventional parameter calibrations, the optimal policy mix in response to a positive cost-push shock could involve interest rate hikes and relaxation of the countercyclical buffer requirement. That is, monetary policy and macroprudential policy instruments are substitutes in this scenario. On the other hand, the optimal policy mix in response to a positive credit demand shock could involve rate hikes and tightening of the countercyclical buffer requirement. That is, the two policy instruments are complements in this second scenario. In addition, model parameters pertaining to country-specific factors, such as economic and financial market structures, also play an important role in shaping the optimal policy mixes. Therefore, it is essential for policymakers to fully consider the types of shocks as well as country-specific conditions in their analytical framework and policy decisions of optimal monetary and macro-prudential policy mix.
   Given the subtle interplay of the two polices, an effective coordination framework is key to achieve both macroeconomic stability and financial stability. In practice, the effectiveness of the coordination mechanism depends on the governance structure (especially the communications between monetary and macroprudential policy makers) and policy makers' ability to understand the spill-over effects of monetary policy and macroprudential policy.
   While the PBC has set up the broad governance structure of the “twin-pillar” policy framework, a number of challenges are still lying ahead. First, financial stability is not yet formally listed as one of the specific mandates of the PBC in the Central Bank Law. This lack of clarity in legal mandate is partially responsible for the limited allocation of resources to macro-prudential issues especially the analysis of impact of monetary policy on financial stability. Second, the Macroprudential Assessment (MPA) system of the PBC is, in practice, mainly intended to facilitate the implementation of monetary and credit policies. Third, the lack of coordination mechanism between the MPA and the macro-prudential and micro-prudential instruments of the CBIRC leads to regulatory overlap and duplication. Forth, the macro-prudential authorities lack the appropriate analytical tools for assessing policy spill-over effects and developing optimal policy mixes.
   Based on our analysis of the problems facing China and international experiences, we propose the following reform measures. First, adding “financial stability” to the mandate list for the PBC by amending the Central Bank Law. Second, developing methodologies and analytical tools for assessing policy spillover effects and selecting optimal policy mixes of monetary and macroprudential policies. Capacity building and international collaboration is essential to achieve these goals. Third, transfering several macroprudential decision-making roles from CBIRC to the PBC. Fourth, establishing a process and mechanism for coordinating monetary policy and macroprudential policy. The Macroprudential Bureau should be able to conduct quantitative assessment of the effects of monetary policy changes on financial stability, while the Monetary Policy Department should be able to conduct quantitative assessment of the macroeconomic effects of macroprudential policy adjustments.

Since the Great Depression, monetary policy has made an important contribution to macroeconomic stability. However, the subprime crisis showed that while attaching importance to price stability, monetary policy may ignore financial risks under certain circumstances, which can ultimately undermine macroeconomic stability. The two-pillar macro policy framework put forward and implemented by the China integrates both monetary policy and macro-prudential policy to support the macroeconomic stability comprehensively and has important theoretical and practical significance.
   In this study, we first propose a framework for China's two-pillar macro policy based on a review of literature and a summary of international experience. We emphasize that (1) the two types of macro policies should perform their own goals: monetary policy should focus on price stability while macro-prudential policy should focus on financial stability, but there is possible synergy and contradiction between the two types of goals; (2) monetary policy and macro-prudential policy should be coordinated appropriately according to different situations in economic and financial cycles; (3) as there may be transmission channel sharing between monetary policy tools and macro-prudential policy tools during their operations, more elaborate coordination is needed in the design of the operation processes of the two-pillar macro regulation; (4) different optimal modes of the two-pillar macro regulation need to be found for different types of external shocks and financial openness. We then construct a DSGE two-country model as a case study to analyze the two-pillar macro regulation and its stabilization effect on macroeconomy. The model analyzes the effects of external financial shocks on domestic economy by incorporating both trade channels and financial channels, together with Chinese characteristics. The innovations we make in this model, compared to the ones in previous studies, can be summarized as follows.
   First, in traditional economic theories, the devaluation of domestic currency affects economy positively by increasing exports and output. However, the negative impacts of domestic currency devaluation through financial channels (e.g. capital outflows may reduce investment and therefore output) are becoming increasingly prominent. Therefore, we incorporate both trade channels and financial channels to better evaluate the overall effects.
   Second, we integrate Chinese characteristics such as capital account restrictions and hedging policies to construct an asymmetric model. In addition, to reflect the economic reality that capitals flow from developed countries to emerging countries, the home country (China) is set to include only entrepreneurs as market participants, while the foreign country (US) is set to include global banks and entrepreneurs as market participants. Due to financial frictions of external financing, the interest rate of Chinese companies' loans from foreign banks is set to be lower than China's domestic market interest rate to reflect the risk premium faced by Chinese companies.
   Third, previous studies on Chinese economy simply assume that capital controls are effective and can improve welfare. We compare specific macro-prudential policies by linking capital inflow tax rate with the size of foreign borrowings and discuss the effects of macro-prudential policy under different scenarios.
   In the case study, our main findings are as follows. (1) Under financial shocks, monetary policy helps to stabilize macro economy.Especially when the exchange rate system changes from fixed to floating, the effect of monetary policy in stabilizing the macro economy is significantly strengthened. (2) On the basis of monetary policy, adding macro-prudential policy tools represented by cross-border capital inflow taxes can effectively curb the procyclical mechanism of financial markets and further improves the stability of macroeconomy.This finding verifies the effectiveness of the two-pillar macroeconomic regulation. Welfare analysis also shows that implementing a macro-prudential policy along with a conventional monetary policy leads to higher social welfare compared to relying solely on monetary policy. (3) The effectiveness of the two-pillar macro regulation is related to the exchange rate system. When the exchange rate flexibility is relatively low, the two-pillar macroregulation has a greater stabilization effect on macro economy and a larger benefit on social welfare.

The implementation and coordination of monetary policy and macro prudential policy require an awareness of changes in the underlying macroeconomic environment.Since 2012, China has been in the process of structual transition, from a manufacturing economy to a service economy, with rising shares of human capital intensive industries (HCIIs).
   Structural transitions in the real economy impact the stability of the macro economy and the financial market. Recently, the major risk to macroeconomic stability has shifted from overheating to overcooling. To stabilize macroeconomic performance, the growth in aggregate demand should be consistent with the growth in aggregate supply. The inconsistency in this relationship is indicated by the inflation rate. During the 2002-2012 period, the general price index, the GDP deflator, was as high as 4.7%, suggesting that the economy was overheating, showing the signs of aggregate demand outgrowing aggregate supply. Growth in aggregate demand is driven by growth in nominal purchasing power, which is caused by credit expansion. Credit expansion is mainly supported by the expansion of firms in capital-intensive industries. After 2012, the economic conditions changed. The average GDP deflator in the 2012-2018 period dropped by 3% to 1.8%. The price index for producers, PPI, witnessed a continuous drop for 18 quarters. There were two reasons for this phenomenon. First, there was a decrease in market-driven demand for credit by firms because HCIIs require less investment than capital intensive industries. Second, banks reduced the credit supply to startup firms in HCIIs due to their lack of collateral and credit records.
   As for the financial stability, the post-crisis reflections on systemic risks mainly focused on the issues of overheating and excessive risk taking, which sets the background for systemic risk has become the pressure of overcooling and insufficient risk preference. However, China is now experiencing a structural transition characterized by weak external demand. Therefore, the sources of systemic risk are now overcooling and insufficient risk taking. In the temporal dimension , new systemic risks stem from the downside pressure of both economic and financial cycles and their mutual reinforcement. In the spatial dimension, the source of contagion riskno longer “too big to fall” systemically important banks, but small financial institutions with big impacts and diversified business models. Since the implementation of the Macro-Prudential Assessment (MPA) framework in 2016, big banks that are identified as systemically important institutions have significantly improved the robustness of their balance sheets, but small and medium institutions, including urban commercial banks, rural commercial banks, and private banks, are facing larger risks.
   Given these issues, we use the “double pillar” regulation framework to make three key suggestions for managing the macro-economy and financial systems in a period of economic transition. First, monetary policy should not try to achieve too many goals; instead, it should prioritize the stabilization of aggregate demand and the achievement of moderate inflation. The major challenge for achieving these goals is the insufficient credit demand by firms and credit supply by traditional banks as a result of transitions in industrial structures. In the long term, the solution to this problem is to implement structural reforms of the financial system that give a bigger role to equity financing tools, as they provide better financial service to HCIIs and satisfy their market-driven financing needs. In the short term, more policy measures should be adopted, such as more flexible adjustment of the policy rate, lifting of loan restrictions in certain industries,and the coordinated implimentation of fiscal policy.
   Second, policy makers should consider the new systemic risks in their design of the MPA, and make improvements to related policy tools and supporting systems. To tackle the systemic risks related to troubled institutions that are small, offer diversified services, and have extensive potential impacts, we suggest three improvements to the current regulatory framework. First, to restrict high cost and high risk financial services, more of the currently unregulated financial innovations should be included in the regulatory framework. Second, there should be a stress test that considers the possibility of the simultaneous market exit of large numbers of small and medium institutions. Third, there is a need to establish a series of firewalls to prevent the contagion and aggravation of risks arising from the exit of troubled institutions.
   Third, the coordination of monetary policy and prudential regulations should take into consideration the current structure of China's financial system and make an effort to reduce the imbalance between the demand of the real sector and the supply of financial services. At the same time, adopting a moderately loose monetary policy could provide a buffer against the constraining effect of more stringent prudential regulations on credit supply, thus reducing the risk of the simultaneous bankruptcy of multiple problematic financial institutions and mutually enhancing the financial and economic cycles.

One of the most essential lessons of the global financial crisis is that a single monetary policy cannot simultaneously maintain both economic and financial stability. To reduce systemic risks, China has proposed a “double-pillar” regulation framework underpinned by both monetary policy and macroprudential policy. This double-pillar framework implies the principle of separating policies from function, emphasizing that macroprudential policy exclusively anchors financial stability, whereas monetary policy targets inflation and resource utilization. Innovatively, this study provides a theoretical foundation for the double-pillar framework from the perspective of systemic risk. Unlike previous studies, our study focuses on risk itself rather than on economic welfare analysis, and pays equal attention to both the time and cross-sectional dimensions of the nexus of the double-pillar framework and systemic risk.
   Above all, this study identifies the mechanism through which systemic risk accumulates and is realized in the two stages of the financial cycle. Specifically, systemic risk builds up during the upward stage of a financial cycle, when it is mainly characterized as a rise in the level of risk-taking in the financial sector under a positive shock. During a downward cycle, systemic risk is realized when negative shocks occur. It can be amplified by leverage mechanisms and interconnection networks within the financial sector, and it will eventually cause externalities to the rest of the economy. Furthermore, we identify two dimensions of systemic risk: the time dimension and the cross-sectional dimension. Based on these two dimensions, we then answer our two main research questions.
   First, we determine the effectiveness of macroprudential policy. (i) Time-dimension macroprudential policy focuses on the time dimension of systemic risk; that is, the procyclicality between the financial sector and the real economy. Using countercyclical instruments such as loan-to-value and capital adequacy ratio can proactively reduce risk accumulation in the upward cycle and lower the probability that systemic risk will be realized. At the same time, establishing a reasonable countercyclical capital buffer or liquidity coverage requirement can enhance the ability of financial institutions to resist negative shocks during the downward cycle, reducing the negative externalities to the real economy when a crisis erupts. (ii) Cross-sectional dimension macroprudential policy focuses on thecross-sectionaldimension of systemic risk; that is, the risk amplification mechanism generated by the related network within the financial sector. Ex ante instruments such as “window guidance” or supervision of systematically important institutions can mitigate the degree of financial interconnection networks and potential risk contagion effects. Ex post tools such as liquidity injection are used to prevent institutions from selling illiquid assets that re-impacts the interconnection network and further amplify the overall losses.
   Second, we study the spillover effect of monetary policy on systemic risk. (i) The spillover of monetary policy on the time dimension of systemic risk is centered on the “capital gap” mechanism. As a positive shock, loose monetary policy affects financial institutions' expansion behavior on their balance sheets, which leads to a positive feedback loop of positive capital gaps, and this exacerbates the accumulation of systemic risks in the upward financial cycle. In contrast, contractionary monetary policy as a negative shock may cause a negative feedback loop of negative capital gaps in a fire sale network, which accelerates the realization of systemic risks in the downward cycle. (ii) Previous studies have paid less attention to the effects of spillover from the cross-sectional dimension of monetary policy on systemic risk. Thus, we briefly outline two potential mechanisms that influence the interconnection network structure of interbank markets, namely the demand matching and risk preference mechanisms.
   Overall, we find that previous studies of the dual-pillar policy widely examine the time dimension of systemic risk, but few consider the cross-sectional dimension. Hence, we propose the following two suggestions for the adoption and coordination of a “double-pillar” framework. (i) Time-dimension macroprudential policy should focus on and eliminate the spillover caused by monetary policy. (ii) Innovation in cross-sectional-dimension macroprudential instruments should be encouraged.

The stabilization effects of monetary policy and macro-prudential policy in an open economy are of concern to both academic researchers and policymakers. The establishment of a macro-prudential policy framework has become an important research topic worldwide since the global financial crisis in 2008. China has explored a series of macro-prudential policies and proposed a two-pillar regulation framework consisting of “monetary policy+macro-prudential policy”. In recent years, many scholars have studied the two-pillar framework.However, less attention is paid when discussing such framework in a managed floating exchange rate regime.The central bank has maintained a relatively stable RMB exchange rate through measures such as open market operations in the FX market, which is also an important monetary policy tool. According to the regulations of the People's Bank of China, maintaining the stability of the RMB exchange rate is one of the objectives of China's monetary policy. Therefore, it is important to study how China's monetary policy is affected by its exchange rate policy, and the coordination between the monetary policy and the macro-prudential policy under the “two-pillar” regulation framework.
   This study first empirically examines the intervention mechanism of the RMB’s managed floating exchange rate regime and its impact on China's monetary policy. Based on Chen et al. (2018), we incorporateexchange rate pressure (either appreciation or depreciation) into monetary policy reaction function. We find that the augmented monetary policy rule is asymmetric. Specifically,the monetary policy negatively responds to an expected depreciation on the RMB while there is no evident reaction when the currency is expected to appreciate.A possible explanation for this asymmetry is that the central bank mainly responds to the appreciation pressure on the RMB through sterilized FX interventions, which does not affect the overall money supply.
   Next, we build an open macroeconomic model consistingof the financial sector and the currency mismatch. The model illustrates how monetary and macroprudential policies help to achieve macroeconomic and financial stability. Currency mismatch commonly occurs in emerging market economies that are in the process of economic and financial globalization (Eichengreen and Hausmann, 1999),and it has become increasingly prominent in China.After the “8.11” exchange rate regime reform in 2015, the depreciation pressure on the RMB rose sharply, leading domestic agents to repay U.S. dollar debts early to minimize their loss. This tightened budget constraints and affects economic and financial stability. Furthermore, the central bank has clearly stated that the macro-prudential management of external debt is also part of capital account management. Therefore, our model of macroprudential policies focuses on the tools used to manage foreign currency debt.
   To study the exchange rate regime, this study adopts “occasional binding constraints” to capture the asymmetric responses of China's monetary policy to exchange rate changes in a structural macro model. We find that under a managed floating regime, the central bank is forced to follow foreign interest rate hikes to restrain the depreciation of the RMB exchange rate. In the absence of macro-prudential policies on cross-border capital flows, the central bank needs to closely follow foreign interest rate hikes by raising the domestic interest rate. Thus,it increases the volatility of economic and financial variables. Macro-prudential policies reduce economic fluctuations to a certain extent and achieve macroeconomic and financial stability. We further examine the impact of pure floating and managed floating exchange rate policies on macroeconomic and financial variables in the presence of macroprudential policies. We find that in the medium and long term, the managed floating regime has smaller fluctuations in its core macro variables, such as output and external debt, than the fully floating regime.
   The main contribution of this study is its investigation of an asymmetric monetary policy in a managed floating exchange rate regimeand the coordination of monetary and macro-prudential policy. This study provides theoretical support for the construction of a two-pillar regulatory framework under an open economy. Our study also offers some suggestions for future research on macroeconomic problems in other emerging market economies.

The relationship between financial development and economic growth has always been a focus of economic research. After the Second World War, the United States experienced rapid financial and economic development. The United States and the former Soviet Union were regarded as the representatives of the market economy and the planned economy, respectively. The collapse of the Soviet Union in 1991 raised the following question. Is the choice of economic development model so simple？ Despite the emerging unipolar world order, some scholars critically pointed out that the capitalist world contains diverse social and economic models. Today, comparative studies of the relationships between various financial development models and economic growth have once again become compelling. For China, which has become the world's second largest economy but is still in a critical transition period, international comparative research offers important theoretical and empirical guidance on how to improve China's financial development and economic growth model.
   There has been a general consensus that financial development promotes economic growth. However, after the “most advanced” U.S. financial system broke down in the crisis that started in 2007, which also caused a global recession, the academic community began to reflect on the validity of this consensus. A representative view is presented in the BIS research reports (Cecchetti and Kharroubi, 2012, 2015), which raise the basic questions: “Are any size and speed of development of the financial system to be regarded as good？ Is the bloated financial system dragging down economic development？” The reports find that the rapid development of the financial industry slows down a country's economic growth, and the size of the financial industry has a inverted U shaped relationship with a country's economic growth. A series studies (Law and Singh, 2014; Arcand et al., 2015) steadily confirm the inverted U shaped relationship. Chinese scholars report similar findings (Lin, Sun, and Jiang, 2009; Zhang and Yang, 2015; Huang and Huang, 2017).
   This study examines the persistence of the positive impact of financial development on economic growth from the fundamental perspective of legal systems. Sparked by the work of La Porta et al. (1998), the now prominent field of law and finance has demonstrated over the last 20 years that property rights protection and investor protection rooted in the legal system have a significant impact on the efficiency of a country's financial system. The source of a country's legal system is a crucial determinant of this effect. Based on this research, we further propose that a country's legal system affects the persistence of finance-led growth.
   We provide both theoretical and empirical support for this hypothesis. First, in terms of the institutional roots of the relationship between financial development and economic growth, we propose the social mechanism as a transmission route, including the conventional political channel, the degree of commodification of the key societal elements, the value and allocation of human capital, and the configuration of state and individual rights. We also propose the adaptive mechanism. Second, we elaborate on how a legal system's core concepts and traditions profoundly influence the persistence of the promotional role of financial development through the two mechanisms, and combine the stylized facts to illustrate this feature in the three legal systems of Anglo-America, Germany, and France. This exercise demonstrates the differential impacts of the legal families on the relationship between financial development and economic growth. Finally, we use standard cross-country data and dynamic panel methods to empirically test the relationship between financial development and economic growth in the three legal families. The results show that the persistence of finance-led growth is strongest in the German legal family, second strongest in the Anglo-American legal family, and weakest in the French legal family.
   On this basis, we point out that the traditional scale-oriented concept of financial development has inherent defects; the emphasis of the financial structure on either the markets or the intermediaries also needs to be adapted with reality, and it is impossible to make a simple comparison between the two. At the same time, it is necessary to consider how the selection and application of a country's core legal philosophy, with all its implications, affect the persistence of finance-led growth. Our research shows that the financial development model can be vibrant not only in the Anglo-American legal system, but also in a civil law system, such as the German legal family. China has its own longstanding historical and cultural traditions. The process of deepening and advancing reforms requires a thorough examination of the elements from any model that suit a particular country. Only through continuous absorption, sublation, and improvement will China's financial development have long-lasting positive impacts on its economic growth.

This study uses the log period power law (LPPL) model to measure price bubbles in real estate markets in China, and the spatial econometric model to study the price bubble contagion effect. This study asks the following questions. Compared with other financial assets, how can price bubbles be measured in the real estate market？ Are price bubbles in the real estate market spatially contagious？ What is the mechanism behind the contagion？ Do macro-control policies effectively prevent real estate price bubbles from expanding？ This study not only quantitatively analyzes the real estate price bubbles in various Chinese cities, but also discovers the relationship between real estate bubbles in different regions. The findings will help local governments to regulate real estate based on local conditions and will help them to develop appropriate policies. According to the LPPL model used in this study, the financial market generated by price bubbles and their eventual collapse is in many ways similar to the seismic system; that is, the price of financial assets changes in a cyclical pattern, and the price continues to rise until a critical state leads to a reversal.
   The LPPL model is mainly used for seismic research. Johansen, Ledoit, and Sornette (2000) and Zhou and Sornette (2005) are the first to apply LPPL to the analysis of asset price bubble behavior in financial markets. Many studies use the LPPL to predict historical financial crises and bubble and anti-bubble phenomena in Western financial markets. They all find that the LPPL model has the best simulation and prediction results for studies of these phenomena.
   The LPPL model used in this study is a commonly used and mature model for studying the bubble theory. It uses observed price time series data to detect the formation of price bubbles and their expected collapse point, that is, the end point of the bubble. It focuses on the simulation of the price formation process itself and the prediction of the price reversal point. Unlike the stock market, real estate price bubbles are characterized by medium-to-long-term continuous rises in price formation, and they occur slowly. The LPPL model can better simulate the process of real estate price growth and reversal. Unlike previous studies, this study considers the characteristics of real estate price bubbles in both the upward and downward stages of the bubble. The biggest difference between the two stages lies in the price dynamics before and after the price collapse point. In a positive bubble, the price appears to grow faster than exponentially with accompanying oscillations, and a price collapse point appears at a future point. The reverse bubble stage begins at the price collapse point, after which prices trend downwards.
   The second innovation of this study is to use the combined cross-sectional physical and economic distances between cities to explore whether real estate price bubbles measured by LPPL have a spatial contagion effect.
   Finally, this study uses the recent real estate control policies issued by some cities to conduct an event study of the impact of these policies on real estate price bubbles. Therefore, this study examines the behaviors of real estate price bubbles before and after the implementation of real estate control policies in some first-tier cities, and whether the contagiousness of the bubble space is weakened or strengthened by these control policies.
   This study uses microstructure real estate market data from 100 cities from the June 2010 to November 2017 period. The LPPL model identifies real estate price bubbles in 100 cities in China, and the bubbles have two main states: a positive bubble (housing prices continue to rise) and reverse bubble (housing prices decline overall, but there is a reversal point). In each city (area), real estate prices have a strong spatial contagion. The spatial infectivity of areas with a positive bubble is more obvious than that of areas with a reverse bubble. When economic measures are used to define spaces instead of physical measurements, the spatial infectivity between cities is stronger. Unlike previous studies, this study finds that increases in the new house price index in reverse bubble areas, especially the second-hand house price index, has a strong positive impact on the real estate price index in surrounding cities. Finally, this study finds that the real estate regulation policies in cities to some extent restrain the traditional impact of housing prices (such as credit and new and second-hand housing prices). Purchase restrictions, price restrictions, loan restrictions, and sales restriction all affect the real estate market through different channels. Loan restrictions create an inflection point in the market, whereas sales restrictions can effectively inhibit market investment. However, the link between real estate prices in various cities should be considered by regulators seeking to control real estate price bubbles.

The private economy plays an important role in China's rapid economic development. However, in recent years, private enterprises have suffered from financing difficulties, and regulatory authorities have issued a series of measures to address this problem. Among these measures, debt financing for private enterprises is a targeted support policy that aims to ease the external financing constraints on private enterprises in a market-oriented operation mode. This policy introduces derivatives such as CRMWs, which are sold at the same time as bonds are issued, allowing investors to avoid the risk of default by purchasing CRMWs. Can this targeted supporting policy successfully support private enterprises？ If so, what is the specific mechanism？ This study uses data on the interbank bond market to empirically examine the impact of the targeted supporting policy on private enterprises' bond financing.
   We collect 2,347 samples from the April 2018 to March 2019 period, which represent bonds from 655 private enterprises and 1,692 state-owned enterprises. The data are mainly from the Wind database. The data on the cancellation of bond issuances are obtained from the Shanghai Clearing House. First, we review the background of the policy and construct a theoretical framework. We point out that this policy has both a signal transmission effect and a CRMW insurance effect. Both effects could effectively alleviate the financing constraints on private enterprises. The signal transmission effect works for all private enterprises, whereas the CRMW insurance effect only works for private enterprises with lower ratings. Based on this finding, we then conduct an empirical analysis to determine which effect is stronger. We use the difference-in-differences (DID) method to determine whether the policy can successfully target private enterprises. In the follow-up, we further explore the CRMW insurance effect.
   We make the following findings. First, after the announcement of a debt financing tool for private enterprises, the price of private enterprises' bonds dropped, and it became easier for them to issue bonds successful bonds. Using a DID analysis as a robustness test, we find that the bond issuing price of private enterprises fell more than that of state-owned enterprises after the announcement of the policy, indicating that it successfully targeted private enterprises. Second, the signal transmission effect of the target supporting policy is strong, whereas the insurance effect of CRMWs is weak. This is shown by the fact the private enterprises' bonds with different ratings all showed a decrease in issuing price and an increase in the probability of successful issuance after the policy was issued. Third, the effect of CRMW on loosening the financing constraints on private enterprises has not been fully realized. Although the role of CRMW in directly reducing the issuing price of private enterprises' bonds is not obvious, this effect significantly increases the probability of successfully issuing bonds, which can indirectly reduce the comprehensive financing cost.
   This study offers the following insights. First, targeted supporting policies in the bond market can accurately support private enterprises. We should promote more such policies. Second, CRMW is currently more helpful for solving the issuing problem than the pricing problem. It is necessary to consider the tradeoff between high-probability issuance with high-cost financing and low-probability issuance with low-cost financing when deciding whether to use CRMW. Third, as the CRMW insurance effect has not been fully realized, more policies supporting CRMW are needed. It is necessary not only to strengthen the breadth and depth of investor education, but also to promote more supporting measures, such as capital charge.
   The contributions of this study are as follows. First, we discuss not only the impact of the targeted supporting policy on the bond issuing price, but also the impact of the policy on the availability of corporate bond financing based on the cancellation of bond issuances, which provides a large sample for a comprehensive review of policy effects. Second, unlike previous studies, we focus on whether the targeted supporting policy can effectively act on the object of the policy; specifically, we conduct an in-depth study of the policy's structural adjustment effect, which provides a new perspective on the policy. Third, we theoretically show that the targeted supporting policy can operate through a signal transmission effect and the insurance effect of CRMW, and then use DID and PSM, respectively, to verify each effect. This provides not only new theoretical support for understanding the policy transmission mechanism, but also a more detailed and targeted empirical basis for evaluating the role of policy.