China 's Monetary Policy For Economic Stability

1030 Words5 Pages
Abstract China’s monetary policies from capital gains, foreign exchange rates, influencing the exchange value on the domestic currency to monetary control on capital and exchange rate are what China is doing as policy to preserve economic stability from global market shocks. I studied the best model that uses those characteristics in China’s monetary policy. The model shows the main points of China’s price control and influence of the exchange value on the domestic currency in their monetary policy. This model also uses a dynamic stochastic general equilibrium to solve implementation of welfare policies that have been relaxed from government control. Capital gains and a more relaxed exchange rate from government control is how the…show more content…
A part of finances from purchases of foreign assets by selling China’s bonds are supposed to be clean so the money supply does not end up expanded. From this policy, foreign reserves assets of the PBOC have quickly grown and global market conditions caused China’s monetary policy to be delicate. (See the graph below). From the study of the effects of China’s monetary policy on limitations of capital accounts, I then use a dynamic stochastic general equilibrium (DSGE) model. The model shows characteristics of China’s monetary policy including a nominal exchange rate and intrusions of the central bank. That also includes the somewhat limited access for foreign assets in the in the international market.
The private sector and China’s central bank are both an intricate part of the model compared to a normal DSGE model because it focuses on how the program works and as well how China’s decisions will influence their monetary policy. The model shows a division of an open interest rate condition, so that there is a place for the policy decisions. The model is like a normal DSGE model that has inflexible prices and agents in the private sector improving constantly. The model is used to find the best monetary policy of China’s central bank which shows the welfare of a household being maximized. The main point that comes out of the model is that even with China’s capitalistic economy, China’s best monetary
Get Access