Dynamic Inflation Target,Money Supply Mechanism and China's Economic Fluctuation:A DSGE-based Analysis

This paper constructs a dynamic stochastic general equilibrium(DSGE) model to analyze monetary policy and China's business cycle.A dynamic inflation target is introduced to investigate how productivity shock,consumer's demand shock,inflation target shock and money supply shock influence China's economic fluctuations.The empirical evidence reveals that DSGE framework is suitable for the analysis of China's macroeconomic problems.It supports the assumption that China's monetary policy has a dynamic endogenous inflation target.The inflation target responds positively to the productivity shock and negatively to the consumer's demand shock.Furthermore,counterfactual simulation shows that the money supply mechanism with dynamic inflation target could stabilize inflation volatility.