The Adaptability Of The Taylor’s Rule In Our Country

Monetary policy is an important part of Macro economic policy，and it regulates theemployment and national income through inflencing the rate of interest,consume andinvestment.In the past ten years, Macro economist pays deep interest on Monetary policyreaction function,and Taylor’s rule is an simple example which fits the The Fed’s monetarypolicies.Taylor’s rule is an effective tool rule,and it exists a possibility and necessity that can beused for our country’s montary policy operation.But the academy finds some doubt about thisrule,for the relationship between the variables in the model exists pseudo reversionphenomenon.The main content of this paper is using the cointegration method to analyze themaneuverability of Taylor’s rule in China’s monetary policy practice. The full text is dividedinto two parts: Theory and empirical analysis. In the part of theory, some relevantpropositions about monetary policy are reviewed, at the same time, according to the historicalevolution of monetary policy rules,the intermediate target of monetary policy and the ultimategoal of monetary policy are introduced, and this part also interspersed some relevantselections about the intermediary target of monetary policy variables and the ultimate goal ofvariables with our country in recent years,which can provide relevant theoretical support forthe subsequent empirical analysis next.The empirical analysis from the two aspects of the launch:one respect is introducing thebasic model and its evolution form of Taylor’s rule,and the other part is selecting the basicvariables from the relevant model of Talylor’s rule,and then embarks from our country’scondition, formulates a special model of Taylor’s rule which suits the practice of ourcountry’s monetary policy practice.The empirical analysis of the model shows that the Taylor’s rule have themaneuverability in China’s monetary policy,.Firstly, the interest rate as the operation of ourcountry’s monetary policy target is valid. The national banking interbank offered rate as the market interest rate demonstrates a high correlation with the output gap, and the relationshipbetween the interest rate and the output gap is direct with no policy time lag. Secondly, themoney supply as the monetary policy target practice in our country for years is still feasible,but with the interest rate marketization reform, the contribution of monetary supply to themonetary policy is declining, and the money supply is more suitable for short-term trimmingtool. Again, based on our country’s special labor market situation,including the varible ofunemployment rate into the target of China’s monetary policy is a reasonble choice,and it canalso solve the problem of employment in China’s social management. Finally, our country hasbeen to maintain the stability of currency value, promoting the economic growth as theultimate goal of monetary policy, but from the analysis results of the model, our country usingthe method of maintaining the interval for inflation does not have any significant policy effectin the ordinaray practices.Based on the analysis of the above chapters, it can essentially provide some effectivesuggestions for the future of China’s monetary policy operation. From a long-term point ofview, the money supply as intermediate target of monetary policy in China is still relativelyeffective, but its validity shows a downward trend; The interest rate as the main objectives ofregulation mechanism is operable, but must be compatible with the market reform of China’sinterest rate mechanism, and this goal in the short term is still difficult to meet; For ourultimate goal of monetary policy, the economic growth is still necessary, consideringemployment factors can become a challenge to our country’s monetary policy operation, andthe goal of maintaining the price stability still has large distance with inflation targeting in thedeveloped countries. At the same time, can not be ignored is, our country also need toconstantly improve the conditions of external environment in monetary policy operation,including market environment, policy environment and system environment, the final targer isin maximum guaranteeing the operation of monetary policy in coherence, and providing thenecessary conditions for the effectiveness of monetary policy implementation.