Application of Taylor Rules in China Based on Neo-Keynesian Model

This paper provides a dynamic neo-Keynesian model of open economy that can be used to analyze the impact of monetary policies including three kinds of Taylor rules in china. The economy is characterized by backward-looking and forward-looking variables. The main findings of the paper are that aggregate demand shocks have great influence on output, aggregate supply shocks or productivity shocks have great influence on inflation and all macroeconomic variables are affected very much by foreign monetary policy shocks. Moreover, first, the nominal interest Taylor rule is good for Chinese economic stabilization. Second, the open economy Taylor rule including foreign exchange rate and forward-looking variables is good for output increment.