Research On The Effectiveness Of Regulation On Investment By Monetary Policy

Investment is an important perspective in the macroeconomic system, a substantial force driving country’s economic growth, and also an important cause of inducing economic fluctuations. As an investment-driven entity in economic development, Chinese soaring investment on one hand promotes rapid economic development, on the other hand brings high pressure on resources and environment, which adversely affect sustainability of economic growth. Thus, using effective monetary policies to control and regulate the amount of total investment has become an urgent need to solve practical problems. This paper is supposed to study the regulation mechanism and effects of monetary policies on investment in context of China’s economic background and financial market.Western schools of economics have different conclusions on this issue based on their different assumptions on behaviors of economic agents. Unlike their analyses based on the assumptions of market efficiency and integrity, our realities are inefficient market mechanism, broad existence of administrative controls, and lower marketization on investments and corporate activities, all of which restrict the efficiency of the indirect control of investment by monetary policies to some degree. However, our financing patterns dominated mainly by indirect financing, investment mode of“binary”entity investment and policy-oriented economic development features make monetary policies able to change lending activities of banks and thus influence corporate investments by changing the amount of loans available, although the cost of financing is not a major factor affecting investment. In other words, changes in size of credit financing will have direct impact on investment, and spot lines derived from the historical data of two factors have also showed significant correlation. Therefore, in short term, effects of China’s monetary policy on investment are still effective. On this basis, combined with statistics, the quantitative effects and time effects on the impact of China’s monetary policies on investment have been supported by empirical evidence that this impact of monetary policy on investment exists.However, we should notice that the mechanism of monetary policies regulating investment is a complicated process, and may be the combined outcome of interest rate channel, asset price channel, exchange rate channel, bank loan channel and the corporate balance sheet channel. Under the background of Chinese reality of economy, to figure out how monetary policies impact on investment through channels above, whether these channels are available and how effective is the impact is of important significance to formulate appropriate monetary policies. Theoretical and empirical analysis indicate that, in China, regulating effectiveness on investments by interest rates, exchange rates and asset prices is relatively weak, but the size of credit financing precedes money supply to regulate investment, and has more significant effects on investment regulation. Therefore, the effect of Chinese monetary policy on investment is based on the regulation of bank lending.To improve China’s regulating effects on investments of monetary policies, we need to deepen the reform of commercial banks, promote the interest rate marketization, accelerate the pace of development of financial markets and foster the rational micro-market players, in order to strengthen the monetary policy transmission mechanism on regulating investment.