Abstract: The effective combination of monetary policy and macro-prudential policies under the "dual-pillar" macro-control framework is the key to achieving the dual macro-control objectives of "stabilizing growth and preventing risks". The previous constant parameter econometric models could not capture the time-varying characteristics of the macro-control effects of monetary policy and macro-prudential policies in different periods and different economic control objectives. For this reason, a time-varying parameter factor expansion vector auto-regression with stochastic volatility was constructed. The (SV-TVP-FAVAR) model analyzes the three-dimensional impulse response of monetary policy and macro-prudential policies from the macroeconomic and financial market levels, and compares the effectiveness of different monetary policies and different macro-prudential policies to explore Effective policy combination under the dual specific goals of economy and finance. The empirical analysis results show that China should implement a two-pillar policy combination of "monetary policy + macro-prudential policy", and macro-prudential policies should implement policy choices based on capital-based macro-prudential policies and liquidity-based macro-prudential policies. A policy choice should be implemented with a price-based monetary policy as the mainstay and a quantity-based monetary policy as a supplement.

Keywords: monetary policy; macro-prudential policy; macro economy; financial market; SV-TVP-FAVAR model