single-jc.php

JACIII Vol.23 No.4 pp. 686-694
doi: 10.20965/jaciii.2019.p0686
(2019)

Paper:

Modeling the Effects of Coordinating Macro-Prudential Rule and Monetary Policy

Xiaowen Hu, Chengchen Hu, Zhixiang Tang, and Zhen Li

School of Economics and Management, Anhui Normal University
189 Huajin South Road, Wuhu city, Anhui 241002, China

Corresponding author

Received:
October 24, 2018
Accepted:
January 11, 2019
Published:
July 20, 2019
Keywords:
macro-prudential rules, monetary policy, quantitative and price-based policy, DSGE
Abstract

We develop a new Keynesian model featuring a dual-pillar monetary policy. We employ this framework to analyze the effects of coordinating macro-prudential rule and monetary policy in China using different tools. The simulation results show that: (1) adopting macro-prudential rule and monetary policy simultaneously can achieve a more stable economic environment than using monetary policy alone; (2) a price-based monetary policy is more effective in stabilizing economic fluctuations than a quantity-based monetary policy when considering the macro-prudential policy; (3) the combination of quantity-based monetary policy and macro-prudential rule can stabilize housing prices and credit growth better than the price-based tools. The study shows that when house prices rise rapidly owing to external shocks, adopting the quantity-based policy instruments and macro-prudential policy is a wise choice. When the financial condition is stable, the combination of price-based instruments and macro-prudential rule is better.

Cite this article as:
X. Hu, C. Hu, Z. Tang, and Z. Li, “Modeling the Effects of Coordinating Macro-Prudential Rule and Monetary Policy,” J. Adv. Comput. Intell. Intell. Inform., Vol.23 No.4, pp. 686-694, 2019.
Data files:
References
  1. [1] M. Friedman, “The Quantity Theory of Money: A Restatement,” Edward Elgar Publishing, 1956.
  2. [2] B. T. McCallum, “On Consequences and Criticisms of Monetary Targeting,” J. of Money, Credit and Banking, Vol.17, No.4, pp. 570-597, 1985.
  3. [3] J. B. Taylor, “The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank,” J. of Monetary Economics, Vol.43, No.3, pp. 655-679, 1999.
  4. [4] W. Ma, “Comparison of the Regulation Performance of Quantitative and Price-based Monetary Policy – Evidence from Dynamic Stochastic General Equilibrium Model,” Quantum Economics & Economics Research, No.1, pp. 92-110, 2011.
  5. [5] L. Zhang and C. Jin, “The Comparative Study on the Effectiveness of Quantitative and Price-based Monetary Policy Tools,” China Industrial Economics, No.1, pp. 119-136, 2018.
  6. [6] Z. Hu, “Is the price-based regulation of China’s monetary policy mature? – Theoretical and empirical analysis based on dynamic stochastic general equilibrium model,” Economic Research, No.6, pp. 60-72, 2012.
  7. [7] X. Hu and S. Zhang, “The Impact of Interest Rate Liberalization on the Effect of Quantity and Price Monetary Policy,” Financial Forum, No.4, pp. 26-35, 2015.
  8. [8] M. Woodford, “Inflation Targeting and Financial Stability,” Sveriges Riksbank Economic Review, 2012:1, pp. 7-32, 2012.
  9. [9] L. E. Svensson, “Comment on Michael Woodford, “Inflation Targeting and Financial Stability”,” Sveriges Riksbank Economic Review, 2012:1, pp. 33-39, 2012.
  10. [10] A. Fatás, P. Kannan, P. Rabanal et al., “Lessons for monetary policy from asset price fluctuations,” World Economic Outlook, Chapter 3, pp. 93-120, 2009.
  11. [11] O. Blanchard, G. Dell’Ariccia, and P. Mauro, “Rethinking Macroeconomic Policy,” J. of Money, Credit and Banking, Vol.42, Issue s1, pp. 199-215, 2010.
  12. [12] P. Angelini, S. Neri, and F. Panetta, “Monetary and Macroprudential policy,” European Central Bank Working Paper, No.1449, 2012.
  13. [13] Y. Ma and Y. Chen, “Coordination and Collocation of Macro-prudential Policy: A Simulation Analysis Based on China,” Financial Research, No.8, pp. 57-69, 2013.
  14. [14] L. Liang and S. Zha, “Discussion on the Effect of Macro-prudential Policy and Monetary Policy: Based on DSGE Framework,” Finance and Economics Research, No.3, pp. 34-46, 2014.
  15. [15] M. Iacoviello, “House Prices, Borrowing Constraints,and Monetary Policy in the Business Cycle,” American Economic Review, Vol.95, No.3, pp. 739-764, 2005.
  16. [16] F. Smets and R. Wouters, “Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach,” American Economic Review, Vol.97, No.3, pp. 586-606, 2007.
  17. [17] M. Iacoviello and S. Neri, “Housing Market Spillovers: Evidence from an Estimated DSGE Model,” American Economic J.: Macroeconomics, Vol.2, No.2, pp. 125-164, 2010.
  18. [18] B. S. Bernanke, M. Gertler, and S. Gilchrist, “The financial accelerator in a quantitative business cycle framework,” Handbook of Macroeconomics, Vol.1, Part C, pp. 1341-1393, 1999.
  19. [19] D. Beau, L. Clerc, and B. Mojon, “Macro-prudential policy and the conduct of monetary policy,” Occasional Papers, No.8, pp. 120-141, 2011.
  20. [20] P. Kannan, P. Ranbanl, and A. M. Scott, “Monetary and Macro-prudential Policy Rules in a Model with House Price Booms,” The B. E. J. of Macroeconomics, Vol.12, No.1, pp. 1-44, 2012.
  21. [21] A. Wang and J. Wang, “The effect of macro-prudential policy and the relationship with monetary policy,” Economic Research, No.4, pp. 17-31, 2014.
  22. [22] W. Zhang, “Monetary Policy Theory–Based on Dynamic General Equilibrium Method,” Peking University Press, 2012.
  23. [23] B. Liu, “Dynamic stochastic general equilibrium model and its application,” China Financial Publishing House, 2010.

*This site is desgined based on HTML5 and CSS3 for modern browsers, e.g. Chrome, Firefox, Safari, Edge, Opera.

Last updated on Oct. 01, 2024