China's Monetary Policy Rules And Its Effect Study

China's economy has experienced 2 periods of boom and 1 period of recession since 1992. What went with them are several monetary policy transformations. The "moderately tightened" monetary policy began in 1994, and the economy soft landed in 1996. The East Asian financial crises erupted in 1997. In order to offset its disbennifit, China's central bank adopted expansionary monetary policy. However, the effect seemed not obvious, and deflation appeared in 1999. Afterward, the central bank began implement "robust" monetary policy, and fiscal policy was mainly charged with the task of macroeconomic management.Lots of researches on the validity of monetary policy came along the monetary policy practice, but most of these researches define the validity how the monetary supply affect the gross demand, gross income and inflation in the direction and magnitude. Then they analyze the validity in respects to policy instrument, transmission mechanism, independence of central bank, harmonization of monetary policy and fiscal policy and the choice of intermediate target, etc. This dissertation believes the validity has another implication: the efficiency of central bank working out and conducting monetary policy. That is how the central bank controls the monetary supply to realize the monetary policy goals, given the response of the gross demand and inflation to the monetary, which can be both stable and not stable. With respect to China, the goals are making the value of money stable and promoting the economy growth. It involves the strategy of central bank working out and conducting monetary policy, discretion or policy rule and what kind of the rule the central bank use. Whether the China's central bank uses the monetary policy manage the macro economy efficiently? This dissertation will answer this question.Based on the quarterly data from 1992 to 2004, this dissertation examine the applicability of Taylor rule, forward-looking rule and one kind interest rate rule modified according to the Chinese situation. The results suggest the Taylor rule cannot describe China's interest rate movement; the central bank smoothes the interest rate strongly, which illustrates the stabilization of interest rate is also one of the policy targets; the responses of monetary policy to the output gap before and after 1996 are different; monetary supply and US federal fund rate have strong explanatory power; the...