Michael Funke (Hamburg University): To guide or not to guide? Quantitative monetary policy tools and macroeconomic dynamics in China

Michael Funke (Hamburg University): To guide or not to guide? Quantitative monetary policy tools and macroeconomic dynamics in China

Co-authors: Hongyi Chen (Hong Kong Institute for Monetary Research), Ivan Lozev (Hamburg University) and Andrew Tsang (Hong Kong Institute for Monetary Research)

Abstract

This paper discusses the macroeconomic effects of China's informal banking regulatory tool "window guidance," introduced in 1998. Using an open-economy DSGE model that includes the commercial banking sector, we study the stabilizing effects of this non-standard quantitative monetary policy tool and the implications of quantity-based vs. price-based monetary policy instruments for welfare. The analyses are relevant to the current overhaul of Chinese monetary policy.

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