Macroeconomic effects driven by the coordinated promotion of interest rate and exchange rate liberalization reform

XIAO Weiguo1 CHEN Yu1 ZHANG Chenran1

(1.Economics and Management School of Wuhan University)

【Abstract】This paper establishes a 4-sector dynamic stochastic general equilibrium (DSGE) model to test the output and inflation response driven by the coordinated promotion of interest rate and exchange rate liberalization reform when the domestic economy suffers from various shocks. The results show that when the domestic economy suffers from positive shocks of domestic interest rate and technology, a certain degree of regulation on interest rate and exchange rate will be helpful for the stabilization of economic growth and price level; when the domestic economy suffers from positive shocks of foreign interest rate and technology, accelerating the liberalization may offset the adverse impacts from the external shocks. When the domestic economy suffers from negative shocks of both foreign and domestic interest rate, promoting the growth and stabilizing the inflation can not be achieved in liberalization acceleration at the same time. Therefore, in order to ensure sound macroeconomic operation, Chinese government and monetary authority need to always pay close attention to the main shocks the economy faces, and promote flexibly interest rate and exchange rate liberalization reform according to the actual economic situation.

【Keywords】 Interest rate liberalization reform; exchange rate liberalization reform; dynamic stochastic general equilibrium model;


【Funds】 Major Project of the National Social Science Foundation (12&ZD046) General Project of National Social Science Foundation (14BJY187) Key Project of Philosophy and Social Sciences of Ministry of Education (12JZD029)

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(Translated by ZHONG Yehong)


    [1]. Due to limited space, market-clearing conditions, corresponding equations of foreign sectors and final loglinearization results are not listed, please contact with the author if you are interested in. [^Back]


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This Article


CN: 11-1692/F

Vol , No. 08, Pages 156-167

August 2015


Article Outline


  • 1 Introduction
  • 2 Model establishment
  • 3. Parameter calibration and Bayesian estimation
  • 4 Empirical results and analysis
  • 5 Conclusions and inspirations
  • Footnote