Item

Evaluating McCallum rule as policy guideline for China

Sun, S
Gan, C
Hu, Baiding
Date
2010
Type
Conference Contribution - published
Fields of Research
ANZSRC::3502 Banking, finance and investment , ANZSRC::3801 Applied economics , ANZSRC::4404 Development studies
Abstract
Economists have reached a consensus that central bank could improve its policy efficiency by following a monetary policy rule. Given that money supply is the People’s Bank of China (PBC) principal policy instrument and its monetary targeting regime, this paper utilizes counterfactual simulation method to evaluate the feasibility of McCallum rule as a policy guideline for China in two simple macroeconomic models. The simulation results show that following McCallum rule could significantly reduce China’s nominal GDP fluctuations. The analysis shows that rule-specified path for the monetary base changes could be used as a benchmark for PBC’s policy decision.