A Study On The Effectiveness Of Credit Transmission Channel Of Monetary Policy In China

The monetary policy is always the hot topic among the economic field. What is its mechanism and whether it is effective are still the ones, which are discussed by economists frequently. Especially, for those countries experiencing the unsound and system transition the studies of monetary policy and banking theory are of great importance in order to help them get out from the economic plight in a short time and achieve a long-term sustainable development. Since John Maynard Keynes set up the framework of the macroeconomics, academic schools have developed their own monetary policy transmission mechanism from different economic perspectives respectively. Their views can be summarized mainly into two categories:the monetary channel and the credit channel. However, no matter which channel is the main channel, its function depends on the cooperation of the microeconomic agents.In a society where the marketization of its interest rates and foreign ex-change is rather undeveloped, the commercial banks must be the transmitter of the monetary policy and of deep influence on the equilibrium of aggregate demand and aggregate supply. The policy aims and relative policy tools of the central bank are all reflected through the economic actions of the financial institutions.China now is at the vital moment of its system transmission. The stable and sustainable market economy is the precondition for the creation of a harmonious society. The stable development cannot be separated from the macroeconomic policy, especially, the monetary policy. China is trying to transmit its monetary policy through interest rate, credit, asset price and foreign exchange. But it is an impossible work in lack of perfect capital and money markets. It is just the real condition in China, so credit channel is still the main channel. Under this condition, we have to put more attention to the commercial bank system. Chinese commercial banks are experiencing their returns to the rational. They will make reasonable expectations to the monetary policy of the central bank and decide how to react following the maximized profits principal. So, whether the goal of central bank can be achieved or not greatly depends on the sensitiveness, timeliness and effectiveness of commercial banks. The central bank should consider making some adjustments in order to guide the behaviors of banks to get better policy effects.It proves to be very necessary and important study how the behaviors of commercial banks influence the implementation of monetary policy by all the above-mentioned analysis. So, this paper will make deep researches on the relation between the commercial banks behaviors and monetary policy transmission effects from aspects such as the policy environment, transmission agents, transmission objects etc. Our purpose is to find the reason why commercial banks distort the transmission channel of monetary policy and how to correct and improve the distortion.The paper includes five parts accordingly. It is arranged as follows:Part 1:introduction. This part will explain the background and point of writing. And review the relevant literatures to pave a way for the further writing.Part 2:analyze the commercial banks behavior through establishing games between commercial banks and their clients and a simple marginal analysis model. This part is the key part. We will resolve the questions how banks act when they face the good and bad borrowers to maintain their maximized profits and in the same time how to put impacts on the effects of monetary policy.Part 3:make the empirical analysis on the monthly data from1998-2008.This part will use VAR model to analyze how China's credit transmission channel plays. The research period is divided into two sections:1998-2002 and 2003-2008 according to the economic cycle.Part 4:summarize the reasons why commercial bank behaviors weaken China's credit transmission channel of monetary policy from the policy environment, transmission agents and transmission objects respectively.Part 5:suggestions to improving China's credit transmission channel of monetary policy by adjusting its policy environment, transmission agents and transmission objects respectively.