Financial Cycle Fluctuation And Monetary Policy Regulation In China

With the improvement of the level of financial development and the improvement of the financial system,the importance of studying financial cycle fluctuations in macroeconomic theory and making policy accordingly has become increasingly prominent.On one hand,the fluctuation of the financial system may lay impact on economy directly since financial shock is not only an important incentive to the fluctuation of the economy,but also a certain extent to enlarge the fluctuation of the real economy,on the other hand,solely achieving price stability could not ensure the stability of financial system.It is difficult to consider the dual stability of the economy and finance by only focusing on the inflationary monetary policy control mode.Promoting the virtuous circle and healthy development of the macroeconomic and financial system,and building a monetary policy regulatory framework that taking the dual stability of the economy and finance into consideration,have become the key issues in the new era of macroeconomic research.This paper follows the research logic of "literature search and summary-theoretical evolution combing-empirical results analysis-conclusions and policy recommendations",and closely focuses on the interaction between the financial system and macroeconomy,and the construction of monetary policy control framework including financial stability goals.In terms of research ideas,it is carried out according to "theoretical basis and literature review-measurement of financial cycle and analysis of fluctuation characteristics-dynamic interaction between financial cycle and business cycle-regulatory effect of monetary policy on financial cycle fluctuations-construction of monetary policy regulatory framework including financial stability objectives".The specific research contents,research methods and main conclusions of each part are as follows:First of all,combining the international environment and the current status of domestic economic and financial development,the research background and significance of this paper will be demonstrated,and on the basis of considering the research ideas and research framework of this paper,as well as the specific research target of each section and the methodology,the main innovations of this paper will be expounded.Secondly,by reviewing the research on the theory of financial cycle,both domestic and international,the definition of financial cycle will be given.It is revealed that,the earlier financial cycle theory is based on the exogenous credit constraint mechanism,including the credit cycle theory and the financial accelerator theory.Financial crisis leads to economic crisis,which proves that financial system itself is an important inducement of economic fluctuation,and relevant theories also expands to include the financial intermediary theory based on endogenous credit constraint mechanism.Furthermore,recent studies on financial cycle have widely adopted various methods to introduce financial shocks,financial frictions,and financial intermediaries into the economic theoretical models and explore their impact on economic fluctuations.Thirdly,the advantages and disadvantages of several classical financial cycle measurement methods are systematically evaluated.TVP-FAVAR model will be adopted to overcomes the disadvantages of various measurement methods to measure financial cycle scientifically and reasonably,and based on Markov regional transfer model and wavelet transform method,the fluctuation characteristics from the perspectives of time domain and frequency domain will be analyzed.The research draws conclusions as follows:(1)Using TVP-FAVAR model to measure the financial cycle not only convincingly reflect the interaction between the financial system and the macro economy,ensuring the economic significance of the calculation results,but also allow the inclusion of enough financial indicators to comprehensively cover different aspects of the financial system.The dynamic measurement of the financial cycle could be achieved at the same time by identifying the participation probability of different indicators in the measurement process,so it is an important method for measuring the financial cycle in the new period.(2)The fluctuation of financial cycle in China possesses the asymmetric characteristics of long expansion and short contraction.While closely monitoring the dynamics of the financial system and actively creating a moderately relaxed financial environment,special attention should be paid to the impact of the rapid tightening of the financial situation on the overall economic situation.(3)The financial cycle in China is composed of three main frequency bands which are slightly shorter than 2 years,3 years to 4 years,and slightly shorter than 8 years.The main cycle is the medium-term component which is 3 years to 4 years.The high-frequency component mainly appears in the period of financial crisis,while the low-frequency component is mainly driven by the fluctuations of credit,exchange rate and real estate market.Fourthly,on the basis of intuitively examining the dynamic relationship between the financial system and the macroeconomy,this paper examines the dynamic spillover effects between the financial cycle and the business cycle based on a time-frequency dual perspective.The main conclusions are as follows:(1)Regardless of whether it is in a relaxed or contracted state,the expected duration of the business cycle is significantly longer than the financial cycle,that is,the state dependence of the business cycle is stronger.Once the financial cycle enters a certain state,the business cycle enters the same state,that is,the financial cycle has a certain "barometer" and "indicator" effect on the macroeconomic operating situation.(2)From the perspective of the time-domain spillover effect based on the full frequency domain,the operation situation of the financial system has a very significant spillover effect on the macro-economy,while the information it receives from the macro-economy is very limited,that is to say,the financial system has an obvious tendency of de real and virtual.(3)From the perspective of spillover effects based on different frequency domains,the impact of the financial system on macroeconomics is mainly concentrated in the medium and high frequency range,that is to say,the medium-term and short-term effects are the main ones,while the level of directional spillover effects of the macroeconomy on the financial system is low in each frequency range,and the rules are not obvious.Fifthly,this paper uses SV-TVP-VAR model to draw the time-point impulse response graphs and the equal interval impulse response graphs respectively,and to investigate the time-varying characteristics of monetary policy on the effect of financial cycle fluctuations regulation.The main research conclusions are as follows:(1)Quantitative monetary policy has the characteristics of rapid effect on the regulation of financial cycle fluctuations,but the effect level is small and the duration is short.(2)Comparatively speaking,the effect of price monetary policy on financial cycle fluctuation is more obvious and lasts longer,though the lag period of regulation effect is longer.(3)Although the level of the regulation effect of price monetary policy on financial cycle fluctuation is about ten times of the effect of quantitative monetary policy,in recent years,the regulatory effect of both types of monetary policy has shown a great degree of uncertainty,so it is necessary to build a regulatory framework of monetary policy that clearly includes financial stability objectives.Finally,under the assumption of multi-objective welfare loss function including financial stability objective,this paper explores the optimal response mechanism of monetary policy to price,output and financial fluctuation,and compares monetary policy responses to various objectives before and after the financial crisis from an empirical perspective.The main conclusions are as follows:(1)Neglecting the influence of financial factors on output gap and inflation will lead to the mis-regulation of monetary policy aiming at the stability of output and price.(2)At present,the "backward" monetary policy may serve the monetary policy regulation practice better in China.(3)Compared with the pre-crisis period,the response of monetary policy to financial fluctuations after the crisis is significantly enhanced,but the response is still far lower than the response to output and price fluctuations,and the focus of monetary policy on the financial stability goal still has a large space for improvement.The coordinated and stable development of the financial system and the macroeconomy,as well as the construction of the monetary policy control framework which takes both financial and economic stability into account,are the key problems to be solved in the new era of macroeconomic theory and control practice.Based on the above problems,this paper has carried out some theoretical and empirical studies,and obtained many empirical basis and policy inspiration.This paper believes that monitoring the operating situation of the financial system from the time-frequency two-dimensional system,actively guiding financial return to serve the real economy standard,increasing the degree of monetary policy's attention to financial fluctuations,and establishing a monetary policy regulatory framework that includes financial stability goals,is the only way to achieve a virtuous circle and healthy development of economy and finance.