Research On The Effect Of Monetary Policy Based On The Generalized Dynamic Factor Model

In 1994, People's Bank of China firstly set money supply as the reference of monetary policy operation before when PBC simply control credit scale as the monetary policy tool. Moreover, it had also been the media-target of monetary policy in 1996. As we all know, credit scale controlling is mostly accordance with the characters of planning system. So it is less than 15 years that China has a modern monetary policy framework. In these 15 years, China's economy has experienced an integrity economic cycle, and different economy posed different challenges to PBC's monetary policy operation. Our central bank had grown up after so many difficult, especially after the issue of Central Bank Bill in April,2004, the ability of open market operation had remarkably improved.Under these backgrounds of development of monetary policy, the article firstly uses generalized dynamic factor model to analysis the effect of monetary policy of China. The conclusion of positive research shows that monetary policy operation has appreciable impact the main economic variables. What's more, the result of generalized dynamic factor model about some variables like GDP is better than vector autoregressive model.After positive research, the article also analyses the problem of the effectiveness of monetary policy after the international financial crisis from three angles, which are operation target, intermediary target and ultimate target of monetary policy. My main conclusion is that the operation of monetary policy after financial crisis is effective. PBC made a successful adjustment over monetary policy, and also had an ideal controlling about Operation target, intermediary target, and the connection between intermediary target and ultimate target is appreciable.