Understanding the Influence of Interest Rate Liberalization on Economic Structure and Monetary Policy
Xiaowen Hu*,**, Bing Xu**, and Shangfeng Zhang**,†
*School of Economics and Management, Anhui Normal University
1 Beijing East Road, Wuhu, Anhui 241000, China
**Research Institute of Econometrics and Statistics, Zhejiang Gongshang University
18 Xuezheng Street, Xiasha Education Park, Hangzhou, Zhejiang 310018, China
In this paper, a dynamic stochastic general equilibrium model with price stickiness is constructed to analyze quantitatively the effect of interest rate liberalization on economic structure and monetary policy. Using parameter calibration and Bayes estimation, we analyze the impulse responses and numerical simulation of the external shocks of technology shocks and monetary policy shock. The empirical results find the following conclusion: Firstly, the interest rate liberalization is conducive to economic restructuring as the investment ratio and capital growth is suppressed and the household and government consumption ratio is promoted. Secondly, the interest rate liberalization can lower economic fluctuation, and enhance the defense ability against external shocks such as technological shocks and monetary policy shocks. Moreover, the interest rate liberalization is help to dredge the monetary policy transmission channels as the interest rate shocks on the real economy is gradually increased.
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