Credit Transmission Effect Of Monetary Policy Resulted By Adjusting Deposit Reserve Ratio

In recent years, the causes and effectiveness that China’s central bank frequentlyadjusts the deposit reserve ratio have become the social focus of widespread concern,currently the academic community exists a lot of controversy about the effectivenessby adjusting the deposit reserve ratio. From the regulatory intention of the centralbank’s monetary policy in recent years, regulating and controlling excessive growth oftotal credit is the main reason that central bank frequently uses the deposit reservepolicy tools. The deposit reserve ratio adjustment will first cause the contraction orexpansion of the scale of commercial bank credit, and thus indirectly control moneysupply, ultimately have an impact on economic goals of monetary policy. So it’s verynecessary to study the credit transmission effect of monetary policy resulted byadjusting deposit reserve ratio.This paper draws on the basis of domestic and foreign scholars, using thecombination of theoretical analysis and empirical analysis, to study the credittransmission effect of monetary policy resulted by adjusting deposit reserve ratio. Themain content of the paper is divided into six chapters. Chapter1introduces thetheoretical background and practical significance, the paper’s basic frameworkarrangements as well as the paper’s innovative points and deficiencies. Chapter2isthe literature review section, learning from domestic and foreign latest research, toelaborate on the quantitative tools of monetary policy and the credit transmissioneffect of monetary policy, It’s worthy of this article to draw on theoretical andmethodological. Chapter3mainly studies the theories of the deposit reserve policy,firstly introduces the mechanism of the deposit reserve policy, secondly analyzes thecredit transmission mechanism of monetary policy resulted by adjusting deposit reserve ratio, again describes the previous adjustments and the reasons for China’sdeposit reserve ratio, finally analyzes the main factors of the effectiveness of thedeposit reserve policy. Chapter4mainly describes the deposit reserve ratioadjustments affect commercial banks’ liquidity, Firstly, using the monthly data of2009-2011, Using ordinary least squares method to analyze the deposit reserve ratioadjustment will cause the growth rate of commercial bank credit to change, Secondly,explores the commercial bank deposit reserve ratio adjustment will bring economiceffects to commercial banks. Chapter5is the empirical part of this paper, usingquarterly data from1998to2011, selects the commercial bank credit balances，moneysupply, real GDP and the inflation rate to establish the VEC model，and uses ADF test,cointegration test, Granger causality test and impulse response function method toanalyze. Chapter6proposes the policy recommendations of optimizing the MonetaryPolicy Transmission Mechanism.The empirical analysis draws some meaningful conclusions. Firstly, the depositreserve policy is the monetary policy which is very important and effectivemacroeconomic regulation and control tools, regulating and controlling excessivegrowth of total credit is the main reason that central bank frequently uses the depositreserve policy tools. Secondly, through the use of ordinary least squares methodregression analysis about the deposit reserve ratio and commercial banks creditgrowth rate shows deposit reserve ratio changes have significant negative correlationwith commercial bank credit growth rate changes, therefore deposit reserve ratiochanges have some impact on liquidity of commercial banks and bring a series ofeconomic effect. Again, based on the VEC model to obtain, there are two mainchannels for China’s monetary policy transmission pathway, through the moneychannel and credit channel impact economic target variables. The money channel andcredit channel have a more obvious explanation on the final economic goals, thereforeChina’s implementation of monetary policy should take into account the moneychannel and credit channel. From the monetary policy transmission process, the creditchannel and monetary channel have different influences on the ultimate goal ofmonetary policy. From the long run, the credit channel has more significant influences than the monetary channel for real GDP, illustrating the credit scale change resultedby adjusting deposit reserve ratio produce a certain effect on economic growth. Butthe credit channel and monetary channel have no significant effects on the rate ofinflation, shows when our country carries out the monetary policy, long-term creditchannel and monetary channel have little effect on the rate of inflation and don’t playa significant inhibition. From the short term, the credit channel and monetary channelcan impact on the ultimate economic goals of the monetary policy, but it exists thetime lag, therefore the credit channel still has significant impact than the monetarychannel. Finally, as can be seen from the empirical results, not as the initial analysis,the main reason is that there will be some obstacles in China’s monetary policytransmission process. In order to further optimize the deposit reserve ratio adjustmentsin the credit transmission mechanism of monetary policy effects, on the one hand, toenhance the effectiveness of China’s reserve policy, on the other hand, to clear theChina’s monetary policy transmission channels and promote the efficiency of themonetary policy transmission mechanism.