Template-Type: ReDIF-Paper 1.0
Author-Name: King Yoong Lim
Author-Name: Chunping Liu     
Author-Name: Shuonan Zhang    
Title: Optimal Central Banking Policies: Envisioning the Post-Digital Yuan Economy with Loan Prime Rate-setting
Abstract: We develop a DSGE model with cash and digital currency to study the financial stability properties of two potential central banking policies in China.
Specifically, a Loan Prime Rate (LPR)-setting policy function and central bank digital currency (CBDC) implementation are examined. 
Distinguish between a benchmark model and a "Post-CBDC world", we Bayesian-estimate the model. Post-CBDC implementation,
we find macroeconomic variables to display greater procyclicality to real shocks. However, we also find a potential LPR-setting policy to exhibit an improved stabilization
property in the post-CBDC world. We uncover an optimal design of LPR policy function, which targets more specifically housing and capital asset markets, 
as well as the growth in CBDC. This suggests a potential policy complementarity between these two seemingly unrelated central banking policies 
in the financial stability agenda of China going forward.
File-URL: http://www.ntu.ac.uk/__data/assets/pdf_file/0021/1474005/optimal-central-banking-policies-envisioning-post-digital-yuan-economy-with-loan-prime-rate-setting.pdf
File-Format: Application/pdf
File-Function: First version, 2021
Creation-Date: 2021-06
Classification-JEL: E4, E52, E58, C11
Keywords: China, Digital Currency, Loan Prime Rate, Monetary Policy, Bayesian DSGE models.
Handle: RePEc:nbs:wpaper:2021/02