Monetary Policy Based on Stochastic Model Predictive Control

Qian DU


“Discretion” and “commitment optimal rule” are two types of monetary policy operations. Commitment optimal rule monetary policy can stabilize the public expected inflation to eliminate endogenous tendency to enhance the credibility of monetary policy, but the lack of flexibility. How to design both prospective, stability, and flexible monetary policy has important practical significance. In this paper, we use time-varying coefficients VAR model to build Chinese macroeconomic model, then by means of stochastic model predictive control to study the rules of monetary policy. The simulation results show the effect of model predictive control is better than “commitment optimal rule” which is based on the linear quadratic optimal control.


Monetary policy; TVP-VAR; Stochastic model predictive control

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