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| On the Adaptability of Taylor Rule as Response to Stock Market Volatility in China |
| WANG Guosong |
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Abstract From the research perspective of price stickiness, this paper elaborates why monetary policy should emphasize stock market fluctuations and how to make a modest reaction to stock market fluctuations respectively from the monetary quantity model and the interest rate transmission channel, and respectively tests the different paradigms of Taylor rule by OLS and GMM. Test results show that the goodness-of-fit of interest rate smoothing Taylor rule and forward-looking interest rate smoothing Taylor rule are improved after the introduction of stock market volatility factors in China. The result suggests that it can improve the effectiveness of China’s interest rate policy to facilitate a modest response to stock market volatility.
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Received: 22 November 2013
Published: 24 February 2014
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Corresponding Authors:
WANG Guosong
E-mail: gswang158@shu.edu.cn
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2014, Vol. 
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