Optimal central banking policies: Envisioning the post-digital yuan economy with loan prime rate-setting
Optimal central banking policies: Envisioning the post-digital yuan economy with loan prime rate-setting
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.
Bayesian DSGE models, China, Digital currency, Loan prime rate, Monetary policy
Zhang, Shuonan
093a5840-cc2a-4306-9eff-522daca9a79f
Lim, King Yoong
24fd66a5-6abe-45fe-88e0-fd8e4043cdcc
Liu, Chunping
84b8869e-77ff-4ca7-9b0b-c3ef17b7e50d
March 2024
Zhang, Shuonan
093a5840-cc2a-4306-9eff-522daca9a79f
Lim, King Yoong
24fd66a5-6abe-45fe-88e0-fd8e4043cdcc
Liu, Chunping
84b8869e-77ff-4ca7-9b0b-c3ef17b7e50d
Zhang, Shuonan, Lim, King Yoong and Liu, Chunping
(2024)
Optimal central banking policies: Envisioning the post-digital yuan economy with loan prime rate-setting.
Emerging Markets Review, 59, [101108].
(doi:10.1016/j.ememar.2024.101108).
Abstract
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.
Text
Optimal central banking policies
- Version of Record
More information
Accepted/In Press date: 17 January 2024
Published date: March 2024
Additional Information:
Publisher Copyright:
© 2024 The Authors
Keywords:
Bayesian DSGE models, China, Digital currency, Loan prime rate, Monetary policy
Identifiers
Local EPrints ID: 486655
URI: http://eprints.soton.ac.uk/id/eprint/486655
ISSN: 1566-0141
PURE UUID: d14921f9-823c-4677-b776-2f7fcbd43188
Catalogue record
Date deposited: 30 Jan 2024 17:58
Last modified: 12 Apr 2024 02:06
Export record
Altmetrics
Contributors
Author:
Shuonan Zhang
Author:
King Yoong Lim
Author:
Chunping Liu
Download statistics
Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.
View more statistics