Taylor Rule and Its Application in Chinese Monetary Policy

This paper introduces the basic model and theoretical development of taylor tule, reviews the characteristic of taylor rule and analyzes the applicability of taylor rule in China according to Chinese condition and practice. The taylor rule captures the essential factors affecting the monetary policy and can become the theoretical basis and referenced measure. On account of the lag of marketlization interest rate and the inefficiency of conduct of interest rate channel in China, taylor rule cannot be applied to China. However, with the advance of interest rate marketlization and the increase of elasticity in interest rate, interest rate will be more appropriate to be the intermediate target of monetary policy in China.