Financial System Reforms and China's Monetary Policy Framework: A DSGE-Based Assessment of Initiatives and Proposals

36 Pages Posted: 15 Dec 2012

See all articles by Michael Funke

Michael Funke

University of Hamburg - Department of Economics; Tallinn University of Technology (TUT)

Michael Paetz

University of Hamburg

Date Written: December 11, 2012

Abstract

This paper evaluates various financial system reform initiatives and proposals in China in a DSGE modelling setting. The key reform steps analysed include phasing out benchmark interest rates, deepening the direct finance market, reducing government’s quantity-based intervention on financial institutions. Our counterfactual model simulation results suggest that the reforms will be beneficial only, if Chinese monetary policy continues to rely on quantity-based interventions on financial institutions or tightens the interest rate rule.

Keywords: DSGE model, financial sector reform, monetary policy, China

JEL Classification: E42, E52, E58

Suggested Citation

Funke, Michael and Paetz, Michael, Financial System Reforms and China's Monetary Policy Framework: A DSGE-Based Assessment of Initiatives and Proposals (December 11, 2012). BOFIT Discussion Paper No. 30/2012, Available at SSRN: https://ssrn.com/abstract=2189458 or http://dx.doi.org/10.2139/ssrn.2189458

Michael Funke (Contact Author)

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
room 2128 C rise
Hamburg, 20146
Germany

Tallinn University of Technology (TUT) ( email )

Ehitajate tee 5
Tallinn, 12618
Estonia

Michael Paetz

University of Hamburg ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

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