The Study Of China’s Monetary Policy Transmission Mechanism

Monetary policy transmission mechanism is the conduction process and mechanism that the central bank uses monetary policy tools to affect the intermediate targets (interest rates, money supply, exchange rates, etc.), achieving the ultimate objectives of monetary policy. It is the whole process from starting the monetary policy tools to achieving the objectives of monetary policy. Effective monetary policy starts from the moment that the central bank uses monetary policy tools to affect the enterprise’s and people’s consumption, savings, investment, import and export and other economic activities through the monetary policy transmission mechanism in the financial markets, achieving the ultimate objectives of monetary policy. The effectiveness of monetary policy largely depends on whether the monetary policy transmission mechanism is smooth or not.Monetary policy transmission mechanism has been the core in the theory of monetary policy. It is also the cutting-edge topics of monetary economics and macroeconomics, on which the economists are constantly deepening their research. With the history of nearly a hundred years, western macroeconomics has been formed a relatively mature and sophisticated theory of monetary policy transmission mechanism, making great achievements not only in theory but in practice. However, the assumptions of western classical theory are perfect market economy system and strict external environment, which are not necessarily applicable to China which is in the process of economic transition. With the deepening of China’s economic reform, studying the monetary policy transmission mechanism not only has profound theoretical value, but also has profound practical significance:from the theoretical point of view, according to the general principles of the monetary policy transmission mechanism theory and the characteristics of China’s economic and financial reform, we can establish a theoretical system of monetary policy transmission, which is compatible with the China’s economic system; from a practical point of view, studying the monetary policy transmission mechanism not only can we deepen our understanding of China’s economic and financial reform as well as the understanding of "Blocking Effect" on monetary policy, but also we can find out the shortcomings of current monetary policy transmission mechanism and propose some policy recommendations to improve the monetary policy transmission mechanism.First of all, the paper describes the western classical theory of the monetary policy transmission mechanism. Then it examines China’s interest rate transmission mechanism, credit transmission mechanism, transmission mechanism of asset prices and exchange rate transmission mechanism of monetary policy in turn, from the research perspective of qualitative and quantitative. The results show that:firstly, interest rate transmission mechanism has its defects, mainly including not fully market-oriented interest rates, irrational structure of interest rate as well as limited stimulation to micro-economic subjects; secondly, credit transmission mechanism has its shortages, mainly related to the lagged state-owned banks’reform, the unperfected financial architecture, the unsound control mechanism of central bank and so on; thirdly, transmission mechanism of asset prices has its drawbacks, mainly consisting of the small-scale capital markets, the institutional deficiencies of capital markets, the imperfect information disclosure system and so on; fourthly, the exchange rate transmission mechanism has its shortcomings, mainly involving the non-market-oriented exchange rate formation mechanism, excessive foreign exchange, not-opened capital projects and so on. In response to these problems, the author puts forward his own policy recommendations, combining with China’s current reality. The recommendations mainly relate to the reform of interest rate, the reform of state-owned banks, the construction of capital market system, the reform of RMB exchange rate formation mechanism etc. The ultimate goal is to improve China’s monetary policy transmission mechanism, improve the efficiency of monetary policy transmission and establish a set of monetary policy transmission mechanism which is adapted to China’s economic system. The main research methods of this paper include combination of qualitative and quantitative, combination of theory and practice, combination of induction and summary.The purpose of studying monetary policy transmission mechanism in this paper is not only to point out the defects of China’s monetary policy transmission mechanism and propose solution, but also attempt to sketch out China’s economy status quo and the direction of economic reform, through monetary policy transmission mechanism. Through the four aspects’discussion above, the author can generally analyze and understand the current issue of China’s economic development. And the author puts forward directional proposal to economic reform, in connection with the problems. The author believes that the understanding of China’s economic performance must be grasped on the whole. We should analyze the links between economic events and carry forward the China’s economic reform and marketing process from the overall level, ultimately achieving free, equal and complete market economic system.