A Study On Regional Effects Of Monetary Policy In China

Monetary policy generally refers to each kind of policy from a country's Central Bank to realize a specific economy target. The validity of the monetary policy is crucially dependent on the homogeneity of the economic and financial development of a region. If the economy and finance is not homogeneous in a region, the uniform monetary policy may generate heterogeneous or different effects. It's called regional effects of monetary policy. The research in this field was mainly about the Euro area and the United States. There also exist multiple regional patterns in China; So it's of significant practical value to study how to set up and implement optimal monetary policy in order to improve the effectiveness of monetary policy and reduce the difference in regional development.From the perspective of transmission mechanism of monetary policy, this paper combines theory with empirical evidence to analyze factors affecting the transmission of the monetary policy. Firstly, the paper analyzes the different effects of the uniform monetary policy resulted from regional differences in financial resources, the industrial structure, enterprise structure, consuming and saving preference of residents and the degree of dependence on foreign trade. Then, the paper applied the vector auto-regressive model to check the credit channel and the monetary channel in four regions. Results show that the credit channel plays more important a role in all four regions, both credit channel and monetary channel are more effective in the eastern region than the others. Based on the above analysis, the paper builds a simple model under the framework of Rational Expectations. The conclusion is that the regional difference in monetary policy manipulation is feasible at present without hurting the unity of the policy provided with the present state of the system of the people's Bank of China (the PBC) and the monetary policy tools. At last, the paper gives some suggestions on the lessons we should learn from the experiences of the foreign countries when implement different regional monetary policy. These measures include: to reform the current structure of the PBC branch system, to use different monetary tools in different areas, to improve the regional financial market system.