Study On The Transmission Mechanism Of Open Market Operation And Its Effectiveness

Open market operation is one of the most important tools for the Central Bank to achieve its monetary policy. Since 1996, China is introduction of the open market bond business. Because of the market economic system's faultiness and financial institutions'inherent defects at that time, the implementation process has not always been smooth, and the effect is not obvious too. The Central Bank used open market operations frequently to inject liquidity to the market in response to the financial crisis this time. With China's economic system and financial institutions continued to deepen the reform, is it has the economic, financial base and actual conditions to actualize the open market operation? Against this backdrop, this article will study on the open market operation to clarify its transmission pathway, and verify its effectiveness.Firstly, this article collected the view points about open market operation from the modern monetary theory with brief description and evaluation, and derived the mechanism of open Market operations from these previous studies; Secondly, this article made a analysis of USA'open market operation, which is one of the earliest countries to carry out open market operation, to draw a referential experience for China's open market operation; Finally, this article elaborated on the transmission mechanism of the open market operation, and made an empirical test on China's open market operation in order to verify its effectiveness against the backdrop of improved market economy environment.In the choice of research methods, this article applied the following three methods: Induction and deduction were used in the analysis of USA'open market operation, as well as the descriptive analysis of China's open market operation since the introduction; While the econometric method such as vector autoregression, impulse response function, vector error correction model, were used in the effectiveness test of open market operation, and all the data used were came from the website like: National Bureau of Statistic of China, the Central Bank of China, China Economic Information Network and so on.Theoretical derivation and empirical test results showed that: With the continuous improvement of the market economy environment, open market operations can be transferred through monetary and credit channels to influence money supply, interest, loan, and ultimately regulate the national economy, but the effects are only obvious in the short time (about four months). Besides, open market operations can control inflation in a certain extent. Comprehensive comparison of the empirical analysis results of the two transfer channels of open market operations shows that monetary channel is still the vital one. Therefore, we can use open market operations more frequently in the future, and put more emphasis on the credit channel, as well as promoting the interest market-oriented reform.