The Welfare Losses of China's Monetary Policy and the Selection of Intermediate Target:A New Keynesian DSGE Model

The paper studies the welfare losses of China's monetary po-licies under the framework of a new Keynesian DSGE model.The main findings are as follows: firstly,the more sensitive the nominal interest rate is to the inflation,the smaller the welfare losses are,so the monetary authorities should make full use of interest rate policies to stabilize the price level;se-condly,the more sensitive the nominal interest rate is to the output,the bigger the welfare losses are,so the monetary authorities should not use the interest rate policies to affect the economic growth speed;thirdly,the stable interest rate has little effects on the welfare,so the interest rate policies should directly aim at the inflation,not the stabilization of the interest rate;fourthly,the welfare losses caused by different interest rate policies do not differ widely,so the monetary authorities can set up the current nominal interest rate according to the inflation rate and output level of the previous period;fifthly,the welfare losses caused by the changes of money supply are bigger than the ones caused by interest rate fluctuations,so the intermediate target of monetary policies should be changed from money supply to interest rate.