The Analysis Of Tight Monetary Policy Effect

Today, monetary policy is becoming more important, it is becoming an important means which could adjust and control the economic in various countries, and especially the main industrialized country. In recent years, economy and finance of our country appeared many problems in operating, just like investment in fixed assets soaring, monetary credit throwing in too much, and some industries overheating. Especially since the first half of 2008, inflation has become the prevailing problem in global economy, whether in developing or developed countries, inflation rates have hit a new high in recent years. In order to restrain inflation, the central bank has adopted a series of tight monetary policy. On the operation of monetary policy on the density and extent of our country in recent years, the tightening degree of monetary policy is not only in the history of our country only, but also rarely seen in the history of the world.Since the second half of 2008, China's tight monetary policy started to show the cumulative effect,such as: CPI has declined, but at the same time accompanied by the slowdown in economic growth and a large number of small and medium-sized has closed as a series of follow-up impact. As it is accurately described by the traditional Phillips Curve, their exists negative correlation between inflation and unemployment, and tightening of macroeconomic policies can indeed effectively reduce the rate of inflation, but the result is based on the cost of high unemployment, which also provide a theoretical basis for selection of macroeconomic policies.On the basis of western theory of monetary policy and with the combination of the actual situation of our country, this paper has made a brief review of the monetary policies under inflation profile over the past two decades in our country, emphatically analyzed the practice and the results of the monetary policy to the current round of inflation, and the factors that led to low efficiency of the tight monetary policy. Finally it is focused on the follow-up economic development resulted from the tight monetary policy, and simply put forward my concern and judgment about the current economic situation and trends.The first part made a brief review on the theory of monetary policy and its evaluation by domestic and foreign scholars. Among many Western economists, because of the differences between their points of view and observation of the factors they emphasize, there exist many schools in recognition of the effects of monetary policy. However, most economists today agree that, whether it is monetary policy or fiscal policy, it can help stabilized the economy. In recession, we should use some fiscal policy, and in a serious period of inflation, we should apply more monetary policy. There are indeed some useful factors for us to refer to in western theory of monetary policy, however, we must see that the western theory of monetary policy is developed based on developed market economy, and also contains a series of stringent assumptions. Our country is in the process of economic transition and institutional change, there is still a huge gap when compared with the developed countries in the degree of development of the market economy. Therefore, the western theory of monetary policy should not be directly applied into the analysis of the effects of our monetary policy.The second part made a brief review of the implementation of tight monetary policy under inflation over the past two decades in our country. After the analysis of macro-control in our country over the years, it is not difficult to see that the macro-policy often do not see results in the short term, but the cumulative effects would come to show after a period of time making greater efforts to continue to adjust. It would often result in the swinging of the monetary policy between excessive expansion and excessive tightening and also cause Chinese economy sank into a hot or cool state.The third part emphatically analyzed the practice and the results of the monetary policy to the current round of inflation, and the factors that led to low efficiency of the tight monetary policy. Current inflation is not an accident, there is deep behind the economic and financial background. The inflation is not unique to China, but a worldwide phenomenon, a single monetary policy of the country is very difficult to solve world-wide costs. On the other hand, monetary policy is indeed the strength of the current overheating of the economy will play a certain extent, but the existence of many of China's economic problem of monetary policy alone can not solve, and all aspects required to complete the set of reforms, such as to rely on fiscal policy to reduce corporate tax to curb local government investment in the impulse to rely on income policies adjust the structure of income distribution, only to monetary policy, fiscal policy and income policy can be effectively combined with inflation.The fourth part of focus from the money market and capital markets, the real economy, investment and consumption, as well as some aspects of international hot money, etc., on the tightening of monetary policy affect the economic development of the follow-up. Great efforts of monetary policy can indeed restrain the economy overheating to a certain extent, but we must also be aware that monetary policy is a double-edged sword. It plays a positive role in the regulation of the economy but at the same time, also has its own serious limitations of excessive reliance on monetary policy, not only fail to solve the problem of the Chinese economy, but have a great harm to the economy. The goal of macroeconomic policies include: full employment, price stability, economic growth and balance of international payments. It is inappropriate to simply keep inflation under control as the primary goal and the importance is placed on economic growth and employment increase. In fact, the use of ultra-tight monetary policy to the cost of the expense of economic growth, despite the growth demand of small and medium-sized but force put down the results of the inflation pressure is the end of the day is likely to credit, investment, economic growth fell, but prices are still hanging. The operation of the economy also has a habitual character, prosperity or recession and even the effect of tightening will continue to influence. Because of the character of delay of monetary policy, and much of the effect of the austerity policy is being accumulated into play, and monetary policy transmission takes time, sustained contraction in the post, even if it does not introduce new policy of austerity, tightening existing inertia will cause the economy continues to decline.The fifth part made a brief analysis of the macroeconomic operation of non-monetary factors, and put forward that tight monetary policy should be used cautiously in the future. Most of the problems appearing in current economy are not root in the monetary field. The tight monetary policy should control the scale well and to avoid overshoot. From the introduction of tight monetary policy to the show of the effect there is usually a period of delay between the implementation of tight monetary policy, we must pay close attention to the cumulative effects of monetary policy and avoid it doing a great harm to the economy.