China’s Monetary Policy Output Effect Research

In recent years, as China’s central bank the People’s Bank of China has been making use of various monetary policy tools to achieve the objectives of the national macro-control. Many scholars have studied and discussed effectiveness of these policies. Based on the previous literature, the effectiveness of our country’s monetary policy which is in condition of closure is discussed. Literatures indicate that the effectiveness of our country’s monetary policy is still relatively limited.What caused the ineffectiveness? Did it because either the government adopted wrong policies or the policies encounter obstruction from the other aspects such as market failure so the effect can not be fully utilized, or our monetary policy, as many scholars said that there are many defects in it, can not be as effective as the fiscal policy of macroeconomic regulation.In order to study these issues, based on the IS-LM model,67 quarterly data between 1994.01-2010.10 as the samples, the GDP, CPI, C, I, R and M1 as the variables, the empirical analysis of the effectiveness of monetary policy was made through using ADF test, Granger causality test and other econometric technique.The throughout article is divided into five parts. The first part is the introduction and the second part consist of main theories and related literatures review. These tow parts mainly describe China’s monetary policy operation over the recent years, previous efforts about research on the effectiveness of monetary policy and achieved progresses and results. The third part is the evaluation on a basic research model and its selection. In this part, the selected model IS-LM model is described detailed firstly. Second, introduce variable selection and function specification. GDP, CPI, interest rates, investment, consumption, and Ml are chose as basic variables. Investment function, consumption function and the money demand function are chose as the basis functions. Finally, also the most critical step in this paper is the empirical analysis. In this part Hicks - Hansen model in condition of closure for China is estimated by amending the raw data and then using measuring software. In the fourth and fifth part, the causes were discussed associated with previous conclusion and some suggestions are put forward.The empirical results show that China’s monetary policy is effective but limited. In this regard, the author puts forward some countermeasures. First, improve the microbasis for economical operation and market economy’s compatibility. Second, rationally utilize the fiscal policy and monetary policy. Third, pay close attention to the growth of money supply. Fourth, improve effectiveness of monetary policy in forward-looking through flexible use of various monetary policy tools.Although there are still deficiencies such as static analysis is mostly used but not dynamic analysis, little measurement error result of software, this paper on the whole has many advantages. First, it uses all quarterly data between 1994.01-2010.10 67 so sample is adequate which to a certain extent can reduce the measurement error. Second, the model proved that the present monetary policy is effective but not sufficient through empirical method. Third, this paper not only analyzes the ineffectiveness of monetary policy but also gives corresponding countermeasures.