Optimal monetary policy rule under model uncertainty in China: analysis based on Bayesian model averaging method

摘要

This paper explores the optimal monetary policy rule for China. A model space with 64 models is established based on a closed backward-looking macroeconomic model. The optimal interest rate rule under model uncertainty is solved by Bayesian model averaging method, and the optimal rate rule in single model is solved as well. Finally, the two optimal rules are compared with each other. The result shows that the optimal interest rate rule under model uncertainty is more robust than the optimal rule under single model. Model uncertainty is one of the reasons of the conservative monetary policy.