Based On The Financial Computable General Equilibrium Model Of Monetary Policy Research

Computable General Equilibrium Model is an economic analysis method that hasdeveloped rapidly during the recent forty years. The existing CGE models are mainlyaimed to analysis the problems in trade, energy, tax and public policy, and these CGEmodels could find reasonable results that were useful towards policy makers.However, the CGE models applied in monetary or financial fields are rarely to beobserved. This paper extends the traditional CGE model structure, and constructs ageneral equilibrium model framework with financial sectors. Specifically, the newmodel firstly builds a financial social accounting matrix, then develops thesaving-investment transform mechanism, and introduces the state-own commercialbanks and central bank to the model, so that it is available to use this model tosimulate the monetary policy. Based on this financial CGE model, this paper evaluatesthe policy impact that the quantitative monetary policy influences the macro variablesin China, and also analyses the ‘hot money’ problem under the model framework.The findings of the scenarios simulation of quantitative monetary policy showthat the policy does a reasonable effect on macro variables under the modelenvironment. The findings figure out that the loose monetary policy has more impactthan the tight policy, when the central bank substantially modifies the policy variables.From the view of industry output, the construction industry is the most sensitive to themonetary policy, followed by the services industry, manufactory industry andagriculture. Focusing on the problem of ‘hot money’, this paper suggests that theinflow of hot money has a limited effect on the output variables, while it considerablyinfluences the price level. Sterilization operation by monetary authority in theinternational foreign exchange market could significantly mitigate the shock of hotmoney. However, with the increasing of sterilization scale, this operation couldintroduce the threats of deflation in a long term.The arrangement of structure is as followed. The introduction will describe theanalysis research background and method of this paper. Chapter1is the literaturereview, and it will introduce the existing research about financial CGE models inrecent30years. Two sorts of usual modeling method in financial CGE model will beconcluded in this chapter. Chapter2introduces the mainly monetary policy since thereform and opening-up in China, as well as its implement target and approach. Thischapter also introduces the ‘hot money’ phenomenon and the sterilization operation by the monetary authority in order to solve this problem. Chapter3begins toconstruct a theory framework of financial CGE model, including the data structure,concrete setting in each model sectors, and the parameter specification. Based on theprevious parts, the Chapter4will do a policy simulation of mainly quantitativemonetary policy by the PBOC, which is aimed to find the impact that the policyinfluents the macro variables. This chapter also simulates the ‘hot money’ problemand the sterilization operation under the model environment. The last chapter is asummary of the findings and provides the actual significances.