Study On Efficiency Of Frequent Adjustment Of Legal Rate Of Deposit Reserve By China’s Central Bank

The deposit reserve system has been developed over a hundred years, and developed countries have completed four evolutionary process, and now many countries have begun to use the zero reserve system. Contrast to western countries gradually abandoning the monetary policy tool-deposit reserve rate, China still widely use it as the main tool for macroeconomic regulation. Since2007, the central bank has already adjusted the deposit reserve ratio over30times, the so-called "ax effect" does not appear in our country. The deposit reserve ratio has reached a highest record of21.5%in2011, and experts have different views. In the current complex domestic and international economic situation, analyzing the validity of reserve ratio tool in monetary policy transmission has becoming an urgent problem.From the point of three monetary policy transmission mechanism, this paper longitudinal analyze the effectiveness of legal deposit reserve ratio in the credit transmission channel, money supply transmission channel and interest rate transmission channel. From credit transmission channel and money supply transmission channels,this paper mainly analyze the internal conduction mechanisms from deposit reserve ratio to intermediate target, while the interest rate transmission channel mainly analyze the mechanism from deposit reserve ratio to SHIBOR which is higher market-oriented. The study found that the effectiveness of deposit reserve ratio in China is weak. To smooth transmission channel analysis, each chapter briefly discusses the external mechanism of monetary policy. Subsequently in this paper, the state space model is used to compare the effectiveness of deposit reserve ratio with interest rates, open market operations and rediscount rate from the lateral correlation angle, and have a conclusion that the effectiveness of deposit reserve ratio is less than other monetary policy tools. It is obvious that not only the deposit reserve ratio exist obstacles in the transmission mechanism of monetary policy but also the effectiveness is relatively weak compared with other monetary policy tools. Finally recommendations for the reform of the deposit reserve ratio in the future are made in this paper.