Has Interest Rate Procedure Become Optimal for China's Monetary Policy?——Theoretical and Empirical Analysis Based on Dynamic Stochastic General Equilibrium Model

China's monetary policy has relied more on money procedure than interest rate procedure.However,drawbacks of current money procedure have gradually shown up in recent years,casting doubts and triggering debates over its efficacy.Based on existing literature,this paper built a decision-making model of central bank under the framework of Dynamic Stochastic General Equilibrium,taking into account rational expectation under which central bank will optimize intermediate targets according to new information.This paper proved that interest rate procedure would be preferred to money procedure,when volatility of money demand exceeds that of interest rate procedure,aggregate demand and supply by a certain degree.Using data of recent decade,empirical analysis showed that money demand in China has become so unstable that interest rate procedure has already become the optimal choice of monetary policy.