A Study of Coordinating China’s Two-Pillar Regulatory Policy under the Shock of the Fed’s Interest Rate Hike—From the Perspective of “Stable Growth” and “Risk Prevention”

Abstract Domestic asset price fluctuations triggered by the impact of the Fed’s interest rate hike may lead to a spiral of mutual feedback between fluctuations in real economy and systematic risks of the financial sector. By constructing a DSGE model of small-scale open economy including cross-border capital flows and supply-demand financial frictions, this paper describes the negative feedback mechanism formed by the interplay between domestic real-economy fluctuations and financial risks on both supply and demand sides under the impact of Fed’s interest rate hike, and studies how to coordinate monetary policy and macroprudential policies under the goals of maintaining stable growth and preventing risks.