The Research on Optimal Monetary Policy and Monetary Conditions Index under Open Economy Dynamic Stochastic General Equilibrium Model:Theoretical and Empirical Analysis Based on 1992-2022's Chinese Data
This paper constructs a New Keynesian Dynamic Stochastic General Equilibrium model in an open economy and simulation results show that interest rates and exchange rates are highly related to ultimate goals under external shocks.Based on the model,we further study optimal monetary policy and find its weight is influenced by model parameters about consumer,producer,and central bank's behavior.Monetary Conditions Index(MCI)is also constructed based on the model.The weight of MCI depends not only on changes of parameters about commodity market,monetary market,and interest rate parity,but also on changes of optimal monetary policy parameters.According to empirical results using China's data from 1992 to 2022,the optimal monetary policy parameter is 1.182 3,which means central bank's monetary policy is counter-cyclical and more weight is put on economic growth;furthermore,our estimation shows that the weight of MCI is 0.786 7,which implies 1％increase in real interest rates is equivalent to 0.79％decrease in real exchange rates,indicating that the impact of changes in real interest rates is weaker than that of real exchange rates.Finally,our empirical research suggests that MCI can serve as an important leading indicator of macroeconomic goals.
New keynesian dynamic stochastic general equilibrium modelOptimal monetary policyMonetary conditions index
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