A Test On China's Monetary Policy Transmission As Money Supply To Be Intermediate Target

As a main macro-regulation policy, monetary policy plays a vital role in the modern economy. The globally accumulated ample liquidity after 911 event and the globally economic recession caused by recent outbreak of the financial tsunami are closely related to the monetary policy. The people's bank of China has selected money supply as China's intermediate target of monetary policy in 1996. Money supply was more and more important in the implementation of monetary policy as a connecting link between the preceding and following. So this article analyzes China's monetary policy transmission mechanism by the following structure "instruments of monetary policy→basic money→money supply→output and price level".First of all, it introduces the history of the development of monetary policy transmission mechanism and the research results on China's monetary policy transmission. According to the actual situation of our country, it then analyzes the environment of China's monetary policy transmission mechanism, identifying the causes that affect the implementation of the policy. Secondly, this article studies the process of China's monetary policy transmission along the channel "instruments of monetary policy→basic money→money supply→output and price level". Through empirical analysis, this article has concluded: currently, China's central bank has maintained a basic ability on the money supply control, however affected by foreign exchange share in basic money and the instability of money multiplier, and there is a balanced steady relationship between output, price level and general money supply in a long time, but there isn't a balanced steady relationship between output, price level and narrowly money supply in a long time. Lastly, in accordance with the results of the analysis above, this article raises the policy suggestions on the problem of China's monetary policy transmission.