Essays in Macroeconomics Público
Xu, Tong (Spring 2018)
Abstract
This dissertation contains three chapters. The first chapter estimates three widely-used DSGE models for the Chinese economy. The structural estimation methodology allows us to analyze the business cycle behaviors for the Chinese economy. We find that (1) the standard Taylor rule as the monetary policy does not fit well with the Chinese data; (2) the spillovers between housing market and the real economy are more likely to work through the collateral constraints on the entrepreneur side rather than on the household side. The second chapter studies the optimal monetary policy in China in a unified theoretical and empirical framework. We build a simple New Keynesian model with asymmetric loss function for Central Bank, adaptive learning expectation, and targeted growth rate to derive the optimal monetary policy for China consistent with the empirical findings. Different from traditional stabilizing Taylor rule, the derived optimal monetary policy for China has a pro-growth feature and is endogenously regime-switching. We estimate the structural model with Chinese data and make inference on the preference of Central Bank from the estimation results. Also, we conduct several forecast exercises and find that the money growth rate has to grow in a relatively low speed in the long run to achieve a reasonable forecast for the output growth rate. The third chapter develops a model of financial intermediation in which the dynamic interaction between regulator supervision and banks’ loophole innovation generates credit cycles. Our model generates pro-cyclical bank leverage and asymmetric credit cycles. We show that a crisis is more likely to occur and the consequences are more severe after a longer boom. In addition, we investigate the welfare implications of a maximum leverage ratio in the environment of loophole innovation.
Table of Contents
Contents
1 Introduction 1
1.1 Monetary Policy and Housing Market in China 2
1.2 Optimal Monetary Policy in China 4
1.3 Loophole Innovation and Supervision 7
2 DSGE Models for Chinese Economy 12
2.1 Literature 13
2.2 Data and Methodology 15
2.3 Smets-Wouters Model 17
2.4 Iacoviello-Neri Model 27
2.5 Liu-Wang-Zha Model 35
2.6 Discussion 40
3 Optimal Monetary Policy in China 42
3.1 Model 43
3.2 Estimation 54
3.3 Forecast 62
4 A Model of Bank Credit Cycles 69
4.1 Literature 70
4.2 Static Model 71
4.3 Dynamic Model 79
4.4 Regulation: Maximum Leverage Ratio 85
4.5 Learning about Loophole Innovation 89
4.6 Discussion 97
5 Conclusion 99
5.1 Summary for Monetary Policy and Housing Market in China 100
5.2 Summary for Optimal Monetary Policy in China 101
5.3 Summary for A Model of Bank Credit Cycles 101
Appendices 103
A Smets-WoutersModel 104
B Iacoviello-Neri Model 118
C Liu-Wang-Zha Model 139
D Proofs for A Model of Bank Credit Cycles 149
Bibliography 153
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