Financial System Reforms and China's Monetary Policy Framework: A DSGE-Based Assessment of Initiatives and Proposals
36 Pages Posted: 15 Dec 2012
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
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