Indian Journal of Science and Technology

Abstract

The household’s preference about investment and consumption influences the effect of monetary policy. Using the research methodology of DSGE (Dynamic Stochastic General Equilibrium) model, this article focuses on the analysis about how the change of household preference and enterprise risk does impact on the effect of monetary policy, in the background of Chinese current financial structure. In conclusion, firstly, the household preferences of consumption and leisure impacts economics in different directions, while the consumption preference does have more direct and powerful influence than the latter. Secondly, the amount of informal financing has more capacity to influence Chinese economy aggregate, with a multiplier effect of approximately 3.3. Lastly, in the time of economic crisis, the effect of monetary policy on financial market is limited and might be in vain.
Keywords: DSGE Model, Dual Financial Structure, Household Preference, Micro-Foundation of Monetary Policy