An Empirical Study of Taylor Rule and the Non-linear Response Function of China’s Monetary Policy

On the basis of Taylor rule and TAR model,this paper makes an empirical study of the non-linear response function of China’s monetary policy during the period from January,1996 to June,2008.It shows that the response function of China’s monetary policy is non-linear,that is,faced with the different conditions of economic operation,the response coefficient of the central bank is changing constantly toward inflation and output deviation.In addition,the focus of the monetary policy objectives will also be adjusted according to the changes of economic operation conditions,i.e.in the low inflation state,the monetary policy will emphasize more on stimulating economic growth;while in the moderate and higher inflation states,the monetary policy will focus on inflation prevention.