Regional Effects Of Monetary Policy In China

Monetary policy generally refers to all kinds of policy which a country's Central Bank uses to realize a specific economy target. The traditional theory thinks that the uniform monetary policy will generate homogeneous effects in the whole country, but actually the economy and finance is heterogeneous in a region, so the effects of uniform policy monetary are different from each other. It's called regional effects of monetary policy. China is a country with a vast expanse, the development of economy and finance is greatly different in each region. A research on the existence and cause of regional effects of monetary policy will greatly help not only to reduce the regional disparities, but also to improve the effectiveness of monetary policy.First, this paper describes the transmission mechanism of monetary policy and reviews the research results which the foreign and domestic scholars have achieved. Second, this paper constructed a regional monetary policy multiplier on the base of IS-LM-BP models, then analyses the cause of regional effects of monetary policy from the theoretical perspective. Third, this paper applies VEC model to test the existence of regional effects of monetary policy, whether the response of output to monetary policy in the impulse response function, or the contribution of monetary policy to output in the variance decomposition, have come to the same conclusion that there are very notable regional differences in the effectiveness of China's monetary policy, and the eastern part is much more sensitive to the monetary policy than the other three parts. Forth, this paper describes the differences in four regions from the perspectives of regional economic condition,financial intermediaries and the behavior of enterprises and residents, then analyses the factors which lead to the existence of regional effects of monetary policy. Fifth, this paper will give the relevant policy recommendations.