Research On The Building Of Rules And Discretion Monetary Policy In China

Function of monetary policy is to achieve the specific target by using the monetary policy instruments ,this is closely related with the monetary policy specification. The current practice of monetary policy has two main types: "discretion choices" and "rules." In 1977, Kydland and Edward Prescott put up the concept of "time inconsistent" to monetary policy, Barro and Gordon proved that the advantages of rules are similar to cooperative solution in game thoery .but although the rules of monetary policy can stabilize the public and can eliminate the inflation bias and can strengthen the credibility of monetary policy, the rules face a policy made by the Keynesian problem of norms. It can not take into unexpected output and price fluctuations, the apparent lack of policy choices by the discretion's flexibility.Our country,s monetary policy practice show that the discretion monetary policy is the main reasons of accumulation of the finance risks ,when the macroeconomic is overheating ,the tight monetary policy can cool the economic but in cost of ecomonic .when the ecomonic is cool,expansion monetary policy will lead to impulse to invest ,so can lead to the most finance risks.Since 1984, the People's Bank of China began to fulfill the functions of the Central Bank, China's monetary policy rule has been in the process of trial and error, with a strong "discretion choice" colors, especially in the financial system before 1993. Discretion control monetary policy was in "loose - tight - loose" situation, the economy is always in a state of "cold" or "overheating" of the turn. In recent years, China's monetary policy operation has been started to change significantly. At present, both the decision-making departments or research departments have gradually formed a "can not rely on the currency to stimulate economic growth" point of view, and advocate the rules monetary policy. In the "Ninth Five-Year Plan", the People's Bank of China began to considerthe money supply as an intermediate target of monetary policy, and published quarterly growth rate ofΜ1 andΜ2 ,that the use of monetary policy rules is a big step forward. However, the operation in the real money supply as an intermediary target problem occur more frequently. Such as: the relationship of money supply and macroeconomic indicators has been reduced, the controlable of the money supply has been reduced and the money supply statistics are incomplete and so on. Faced with this situation, a single fixed rules is too rigid, the conflict of flexibility and credibility between the fixed rules and the discretion was particularly evident.This article holds that a country's implementation of monetary policy can not be absolute rules and can not be absolute discretion, because the rules have the advantage of long-term stability of the economy, this paper argues that China's monetary policy should adhere to certain rules long term and with the direction of acting against severe short-term economic fluctuations to some extent, which can achieve the long-term stability for short-term and can easily cope with an uncertain environment.This paper use the theory of finance, microeconomics and econometrics, on the base of domestic and foreign research results to attempt to analyze the monetary policy framework (the framework of New Keynesian economics) on a series of monetary policy rules and discretion to answer the question of the issue: the main monetary policy rules are applicable in China? What formof rules should be the best choice? Because the drastic fluctuations of the capital market in 2008 all over the world, China's rule should or not consider the the bubbles of capital markets .In view of the current rules of the money supply has been generally agreed that the rules is not suitable for China's economic development, this article attempts to compare the rules of this article with the money supplyto make the conclusions more credibility. Those conclusions provide the complete framework to China's central bank for future monetary policy. Thus has a strong practical significance.Research ideas in this article follow the design of monetary policy abroad, the traditional analysis of ideas - "the feasibility of testing - sound-based testing - design detail - a comparative analysis with other rules - Conclusion." The study methodsin article include: combination of theoretical and empirical research ,the combination of qualitative analysis with quantitative analysis. this paper empirical research and quantitative study of the comprehensive use of mathematical statistics and econometrics methods, such as state-space model and Kalman filter methods, and take full advantage of draws on the latest empirical literature methods.The content arrangement is :The first chapter introduces the thesis of the starting point for topics, topics of theoretical and practical significance of the study, research ideas, research methods and main results, this chapter provides the general outline of this article.The second chapter introduces the rules and the discretion of choice literature review study. this Chapter describes the rules and the discretionmonetary policy intrinsic meaning (including the extension and intension), historical development and recent research. Lack of previous studies proposed that the main contents of this article.The third chapter introduces the research base in this article - based on New Keynesian economics and monetary policy to explain the rules and discretion of micro-explanation. The chapter introduces the traditional IS-LM macro-economic point of view in first ,then the Prescott and choice of discretion to the Barrow and Gordon,s model of inflation bias, based on the above research results this article in accordance with the framework of the modern New Keynesian economics of the discretion choices and explain the rules of micro-, through the analysis of deep excavation in this chapter the rules of choice and the inherent meaning of thediscretion for the reality of the development of monetary policy practices provide a complete framework and lay a theoretical basis.Chapter IV analysis the characteristics of China's monetary policy for rules and conditions of the discretion choices empirical research.Chapter V makes the emprical analysis of interest rate rules feasibility for monetary policy in China. Practices by the rules of the center (the central bank reaction function) to start using a standardized structure and simplicity of our model of the design of monetary policy rules for analysis and make the testing of break point and robustness of conclusions firstly. This chapter combines the analysis of the reality of China's economic situation and the historical data and the design of monetary policy rules of thinking, this chapter profoundly portraits China's monetary policy charactes and lay the foundation for the specific design rules.Chapter VI analysis the uncertainty for monetary policy. The so-called uncertain economic environment includes model uncertainty and data uncertainty. This chapter analysis our country's monetary policy of uncertainty existing and describes the instability of China's monetary policy IS curve and Phillips curve. this chapter use state-space model and Kalman filter of Econometric techniques to estimate China's inflation rate target accurately, the combination of the rules with target can achieve two objectives: First, monetary policy is bound by rules with limit of inflation target range; second can response and adjustment to changes in the economic situation in time. Operation of such a policy is more standardized, proactive and flexible.Chapter VII introduces the another important aspect of the design for rules: whether the central bank reaction function take into account the asset prices. As the economists have a lot of controversy, such as Taylor and Benanke monetary policy rules that do not have to consider only when asset prices due to changes is expected to have an impact on monetary policy; Cecchetti et al, such as economists strongly claim that the rules of monetary policy should include stock prices. At present, China's capital market has rapidly developed and is also an important way for China's monetary policy transmission , it is necessary to discuss the design of monetary policy rules with asset prices (such as stock prices, the real estate market prices). Chapter V, Chapter VI and Chapter VII of the content is the focus of this paper and focus on reality problems of the rules of monetary policy designed , is now in academia and practice the rules of monetary policy on the main topic.Chapter VIII first analysis the current monetary policy rules of money supply rules, the rules of the money supply and interest rate rules-based benefits from the stability and function to compare aspects of empirical analysis, the final rules of monetary policy research and policy practice in our country combine the study of China's interest rate-based monetary policy rules of the possibility of coming to a conclusion.Chapter IX provides the main conclusions of papers and policy recommendations.The basic conclusions of the paper are:(1):"monetary policy rule"will fit for our country better .Fristly , the decision making procedure is simple of"monetary policy rule",it will reduce the blindless of monetary policy for our central bank now technology conditions ;secondly ,"monetary policy rule"will reduce the dependence of monetary policy ;last ,"monetary policy rule"will effienct the monetary policy benefits .(2): Due to the uncertainty of economic enviroment , our country,s monatery policy has the uncertainty character .the central bank must consider the a centain level of discretion operation for the uncertainty economic.(3):The central bank should consider the asset price changes when designing the monetary policy rule, this will improve the social welfare and will make the asset market conduction more smooth.(4): Because the interest rate monetary policy rule meet the applicability and robustness characters,the central bank should use the interest rate monetary policy rule.The basic innovation of the paper:(1): The paper organise the former research systematiclly and comprehensively ,and the paper does the micro-explain for monetary policy rules and discretion based on the New Kenseysion economic theory ,this will lay the foundation for the follow-up study.(2): The paper make the simulation analysis for the uncertainy of the monetary policy ,this will provide a basis for the follow-up study.(3): The paper design the monetary policy including the asset price bubbles and calculate the monetary policy conditions(FCI) for our country .(4): The paper make the applicability and robustness test for our country monetary policy.The paper analysis the interast rate monetary policy rule and money supply rule based on the dynamic New Kenseyion economic theory and comparison analysis method.The conclusion is the interast rate monetary policy ruleis optimal for our country.