Monetary Policy Study Of The Problem Of The Choice Of Intermediate Target In China

The global financial crisis caused by the credit crunch in United States by the end of 2007 has become the most severe financial crisis since 1929.The storm swept through Europe and the United States and caused a global stock market plunge. The international financial crisis has already put effect on our country’s economy. China’s monetary policy, to a certain extent, also showed a marked lag. At the same time, the trend of financial innovations have challenged on the monetary policy.For an effective framework of the monetary policy operation, choosing the intermediary target is an important part. Therefore, the selection of the intermediate goal of monetary policy and regulation has been a great deal of concern. Whether our country really need an intermediary goal or not? Should we give up the money supply? If it does so,is there a position to make other choices? Furthermore, in what areas can we improve our country in order to improve the effectiveness of all intermediary goal? These questions are worth discussing in the current study.In his paper, the author use intermediary goal theory to study the selection of China’s monetary policy’s objectives, and also use advanced econometric to study the equilibrium relationship between intermediary variables and the ultimate goal of monetary policy in the long-run through the empirical research, and come to the conclusion that money supply is not suitable as an main intermediary objective in China’s monetary policy. In our country, we should use inflation rate as the main intermediary target, while the money supply, interest rate, exchange rate mixed as supporting objectives.This Paper is composed by two parts, including theory and demonstration. In the theoretical analysis of this paper, monetary policy and the ultimate goal of monetary policy led to the function of intermediary goal, after a comparative analysis of Keynesian school, monetarist school and school of Post-Keynesian, every theory of school-related has its own reasonable point. In the part of positive analyses on intermediate targets of monetary policy of China, the author adopt statistics method to analysis monetary aggregates measurability, controllability and correlation. By the fact of Granger causality test, we find that monetary aggregate as intermediate targets has effect. but its validity is weakened unceasingly. In summary, we get to a conclusion of the monetary policy for our country, so far the basic intermediary goal should be like this, the basic money supply is currently effective, but its effectiveness is inevitably trend to decline, single goal is not feasible for the inflation rate. Under such circumstances, monetary policy framework for decentralization is the inevitable choice for our country. In future, the framework of monetary policy, under normal circumstances, the inflation rate will be the main goal.In addition, it should set up an analysis framework, including money supply, interest rate, the exchange rate and other economic variables.