Analysis On The Validity Of Money Supply As The Intermediate Target Of Chinese Monetary Policy

Intermediate target of monetary policy is an important sector in the monetary transmission mechanism and also is an important part of a country's monetary policy system, the selection would directly affect the effectiveness of monetary policy. Therefore, it's very important to select the appropriate intermediate target. According to traditional finance theory, the main considerations to measure the validity of intermediate target of monetary policy are relevance, controllability and testability three areas. We use money supply as the intermediate target, the evaluation of money supply indicators is also based on the three areas, while empirical studies show that the validity of the money supply is steadily sinking down and provoke the controversy of whether to stick to the money supply target.This paper reviewed the related literature about intermediate target of monetary policy at home and abroad, drawing on foreign experience in the intermediate target of monetary policy selection to discuss the applicability of money supply as intermediate target combined with the specific economic and financial situation in our country. From the three parties of relevance, controllability and testability, this paper combines theoretical analysis method with empirical analysis method to give a deep analysis. The results show that: there is a strong correlation between money supply and the ultimate goal of monetary policy (GDP).Though its controllability and testability has demonstrated a certain limitations, the People's Bank can still achieve macro-control goals through the intermediate target.This paper argues that in the present stage, our monetary policy independence is not strong and the interest rate market is not fully realized, so our country should continue to use the money supply target based on the improvements of the three characters of money supply. At the same time, steadily promote the deepening of the reform of financial system, in order to lay the foundation for the intermediate target transformation.