The Empirical Analysis Of China's Monetary Policy Independence

In 2006, China's central bank particularly emphasized on increasing the go-aheadism and effectiveness of monetary policy. In 2008, in response to the global financial crisis, almost all the countries in the world adjusted their monetary policies, and China even lowered its deposit reserve ratio and benchmark interest rates for deposits and loans many times, it has carried out a moderately slack monetary policy and a prudent fiscal policy. In 2010, the Central Bank has increased the deposit reserve ratio in order to response the hot economy. So, the effectiveness of monetary policy has been paid close attention to. But to some extent, the effectiveness of a country's monetary policy relies on its independence.This paper mainly studies on the general independence of monetary policy of China, which includes not only the independence of monetary policy that narrowly defined, but also the effectiveness of monetary policy. From the aspect of external conduction, it focuses on the influences between the interest rates of U.S., Japan, European Union and interest rate of China. The result is that after July 2005,the changes of foreign interest rates have been the Granger cause of the change of China's money supply and that of the interest rates of China. This means that after July 2005, China's monetary policy has been influenced by foreign monetary policies more and more, that is, the independence of monetary policy of China has been gradually weakening.From the aspect of internal reaction, the paper analyses the impact of China's monetary policy intermediate target on the ultimate objectives. The results show that monetary policy is quite effective. And the use of interest rate can be good to promoting the growth of economy; the use of money supply is better to maintain a stable price level. In addition, the effectiveness of monetary policy seems have little relationship with the exchange rate's fluctuations or not. What's more, because China's Central Bank is one department of the government, so China's monetary policy is not very strong.So our country should improve the foreign exchange market mechanism, increase the openness of capital, effectively implement the single target of monetary policy and speed up the process of interest rate's marketization, and improve the independence of the Central Bank, so as to maintain monetary policy's independence and effectiveness.