TY - JOUR
T1 - Optimal central banking policies
T2 - Envisioning the post-digital yuan economy with loan prime rate-setting
AU - Lim, King Yoong
AU - Liu, Chunping
AU - Zhang, Shuonan
N1 - Publisher Copyright:
© 2024 The Authors
PY - 2024/3
Y1 - 2024/3
N2 - We develop a DSGE model with cash deposits and digital currencies to study the economic stability of two potential central banking policies in China, a Loan Prime Rate (LPR) policy function and central bank digital currency (CBDC) implementation. We Bayesian-estimate both a benchmark model and a “Post-CBDC world”. In the post-CBDC world, although the introduction of CBDC appears to deepen the procyclicality of macroeconomic variables to real shocks, a potential LPR-setting policy appears to have some degree of policy complementarity with CBDC to mitigate this. We also uncover an optimal policy combination of the LPR rule and Taylor-style CBDC rule.
AB - We develop a DSGE model with cash deposits and digital currencies to study the economic stability of two potential central banking policies in China, a Loan Prime Rate (LPR) policy function and central bank digital currency (CBDC) implementation. We Bayesian-estimate both a benchmark model and a “Post-CBDC world”. In the post-CBDC world, although the introduction of CBDC appears to deepen the procyclicality of macroeconomic variables to real shocks, a potential LPR-setting policy appears to have some degree of policy complementarity with CBDC to mitigate this. We also uncover an optimal policy combination of the LPR rule and Taylor-style CBDC rule.
KW - Bayesian DSGE models
KW - China
KW - Digital currency
KW - Loan prime rate
KW - Monetary policy
UR - http://www.scopus.com/inward/record.url?scp=85183918200&partnerID=8YFLogxK
UR - https://www.sciencedirect.com/science/article/pii/S1566014124000037
U2 - 10.1016/j.ememar.2024.101108
DO - 10.1016/j.ememar.2024.101108
M3 - Article
AN - SCOPUS:85183918200
SN - 1566-0141
VL - 59
JO - Emerging Markets Review
JF - Emerging Markets Review
M1 - 101108
ER -