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Chinese Journal of Management Science ›› 2024, Vol. 32 ›› Issue (10): 1-10.doi: 10.16381/j.cnki.issn1003-207x.2022.0078

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The Optimal Monetary Policy Choice in Cooperation with Macro-Prudential Management: Based on Chinas DSGE Analysis

Xintao Han1(),Xiaomin Zhang2,Xing Liu3   

  1. 1.The Chongqing Branch of the People’s Bank of China, Chongqing 401147, China
    2.The Fuling Branch of the People’s Bank of China, Chongqing 408000, China
    3.School of Economics and Business Administration, Chongqing University, Chongqing 400030, China
  • Received:2022-01-13 Revised:2022-02-18 Online:2024-10-25 Published:2024-11-09
  • Contact: Xintao Han E-mail:hxt777666@163.com

Abstract:

Since the 2008 financial crisis, macro-prudential management has gradually become one of the important responsibilities of major central banks around the world. Macro-prudential policies and monetary policies are “involved” each other, so central banks considering macro-prudential policies face more complicated choices in choosing the optimal monetary policies than those considering monetary policies alone. Taking China as an example, the optimal choice of monetary policy in cooperation with macro-prudential coordination is studied by establishing a dynamic stochastic general equilibrium (DSGE) model based on the characteristics of China, such as the “binary” enterprises, shadow banking, government debt, and interest rate rules considering the money supply.Not only the research results of China's optimal monetary policy are enriched, but also ideas on how to balance macro-prudential policy and monetary policy when the central bank makes decisions are provided.The results show that considering the cooperation with macro-prudential management, the interest rate rule considering the money supply factor is more helpful to maintain the short-term and long-term stability of the social economy than the interest rate rule considering only the smoothing factor when the macroeconomic economy is affected by the technological shocks of state-owned enterprises and non-state-owned enterprises. In case of financial shock, the interest rate rule that considers money supply factor has less impact on economic growth rate, government expenditure, central bank’s interest rate, employment, credit and other variables than the interest rate rule that only considers smoothing factor, but it takes longer time to achieve equilibrium. Even if macro-prudential management is not taken into account, after financial shocks, interest rate rules considering money supply factors can control macroeconomic stability more quickly, and regulate liquidity of financial market more effectively. Moreover, under technical shock and financial shock, the welfare loss caused by the interest rate rule considering the money supply factor is less than that caused by the interest rate rule only considering the smoothing factor.

Key words: optimal monetary policy rules, macro-prudential management, DSGE model

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