The Research On The Interaction Between The Macro Prudential And Monetary Policies

For a long time, people always viewed monetary policy and financial management policies as two independent fields. The financial system had the ability to self-correct, and the micro prudential policymaker managed the banking internal governance and bank capital to achieve the goal of avoiding excessive risk-taking. Through the management of the expectation of the future interest rate, the monetary policymaker changed the yield curve and the long term interest rate, and then impacted the social aggregate demand, aimed to the target of inflation, so the monetary policy was sufficient enough to stabilize the economy. Additionally, the close relationship between the monetary policy targeting inflation and macro economy stability made all of the world believe that we could maintaining the financial stability by the channel of micro prudential management policy.However, the full-blown financial crisis completely changed the idea before people owned. The people saw the financial crisis and the whole society having to pay a heavy price, thus the people made the deep reflection on the policies.From the views of the financial supervision, every country in the world needed a more sound financial system. Thus the management not only had to supervise the single financial institute, but also beyond the one institute or one market, to analyze the whole system, including economic development impact from the outside, linkages between institutions generated in the financial system and network effects. This kind of analysis could find out factors that cannot be found in isolation, and it was helpful for financial institute and financial supervisor to forecast the potential problem, and to manage the broader wide financial system. This was the most considerable reform, macro prudential supervision.Generally speaking, macro prudential management framework includes four aspects. First, macro prudential analysis. Second, the choice of the macro prudential instrument and deployment of measures. Third, the establishment and improvement of macro-prudential supervision system. Forth, coordination with other macroeconomic policies, especially monetary policy coordination.From the point of view of macroeconomic management, monetary policy and financial supervision and management policies was not completely independent. Policy makers cannot be regarded as different disciplines of monetary policy and financial regulatory policies, but to take full account of the effects of policies of different policy, take the cooperation or coordination of policy instruments. The effectiveness of monetary policy and macroeconomic performance greatly depended on stability and health of the financial system. Sound economy would facilitate the management of considerable pressure because of the recession would be applied to the financial system. In addition, the views from the bank management organizations also contribute to the formation of monetary policy, because the economic analysis is the basis of the monetary policy, but also to promote a deeper understanding of the economic agents of financial institutions facing risk.So the academic and regulatory communities increasingly accepted the fact that the macro economy had interdependence with the asset price, so acquired the coordination between monetary policy and macro prudential policy. Although the concept of prudent macro management proposed not long, the research of the financial stability had honored by the time, especially related to issues of relationship between price stability and financial stability, monetary policy and financial stability, monetary policy and asset prices, monetary policy and financial policy.Firstly, the paper reviewed the literature on the relationship between monetary policy and macro prudential policy, including relationship between the policy objectives of the two policies, institutional settings synergies between policies, the risk of conflict between the policy coordination mechanisms between the policies, and so on. And then, on the basis of the literature review, the paper focused on the origins of macro prudential policy and monetary policy coordination problems between analysis spillovers between the two policies, the impact mechanism between the tools, as well as policy conflicting. After theoretical analysis of macroprudential policy and monetary policy, we draw on the basis of dynamic stochastic general equilibrium model of the international framework, the use of the related parameter calibration between China’s monetary policy and macro-prudential policies relationship, for quantitative studies. The conclusion of the quantitative analysis was the welfare of macro prudential policy was improving, and monetary policy tools combined with macro-prudential tools, especially the counter-cyclical capital management requirements for the stability of the financial system, and improve the economic environment. The last, the paper concluded the general revelation to improve monetary policy and macro-prudential policies, and combined with the financial regulatory practice in China, and the experience of the management of monetary policy, proposed the policy of strengthening the macroprudential policy and monetary policy coordination.