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Negative Impact of Technology,Exchange Rate Intervention and Monetary Policy Regulation——Based on DSGE Model
Author(s): HE Yan-qing, WU Xin-ru, School of Economics, East China Normal University
Pages: 74-
86
Year: 2016
Issue:
10
Journal: Modern Finance and Economics-Journal of Tianjin University of Finance and Economics
Keyword: technology shock; DSGE; exchange rate intervention; interest rate parity; monetary policy;
Abstract: In this paper,we build an open economy dynamic stochastic general equilibrium(NOEM-DSGE)model,with the central bank balance sheet embedded into dynamic system,trying a new perspective on the negative impact of technical transmission mechanism discussed.In the current quantitative monetary policy rule,after an negative impact of technology,the domestic inflation rate rises,causing the nominal interest rate to rise.With the increase of the cost of sterilization,the central bank reduces the issuance of central bank bills.The nominal exchange rate depreciates in the spot,while the real exchange rate continues to fall.So that the central bank enters the foreign exchange market,making apassive direct intervention,which leads to an reduced net foreign assets.Consumption continued to decline,while investment increased in the short term,then continued to shrink,and output continued to decline.Exports increased while imports declined slightly after the first sharp rise.Therefore,the central bank’s monetary policy is constrained by its balance sheet,and direct intervention in the exchange rate weakened the independence of monetary policy seriously.Welfare Performance analysis shows that if the monetary policy is conducted with an interest rate rule and shifts to peg the exchange rate target zone,it can effectively improve social welfare.Finally,a number of policy recommendations about exchange rate system reforming and monetary policy regulation are put forward.
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