Optimal Central Banking Policies : Envisioning the Post-Digital Yuan Economy with Loan Prime Rate-Setting
We develop a DSGE model with cash and digital currency to study the financial stability properties of two potential central banking policies in China. Specifically, a Loan Prime Rate (LPR)-setting policy function and central bank digital currency (CBDC) implementation are examined. Distinguish between a benchmark model and a "Post-CBDC world", we Bayesian-estimate the model. Post-CBDC implementation, we find macroeconomic variables to display greater procyclicality to real shocks. However, we also find a potential LPR-setting policy to exhibit an improved stabilization property in the post-CBDC world. We uncover an optimal design of LPR policy function, which targets more specifically housing and capital asset markets, as well as the growth in CBDC. This suggests a potential policy complementarity between these two seemingly unrelated central banking policies in the financial stability agenda of China going forward
Year of publication: |
[2021]
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Authors: | Lim, King Yoong ; liu, Chunping ; Zhang, Shuonan |
Publisher: |
[S.l.] : SSRN |
Saved in:
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