Empirical Study Of The Effectiveness Of China’s Monetary Policy

Monetary policy is the primary means of macroeconomic control by central bank.It plays an important role in stabilizing prices, full employment, promoting economicgrowth and keeping balance of international payments. The free market economics aremore developed, the perfect monetary policy system is more required to support.Therefore, as main way of manipulate the economy, the effect of monetary policy hasalways been the focus of the government and academia. It is a short moment to the longriver of history from the1997Asian financial crisis to the present. However, it hasexperienced three serious financial crises. This paper is researching for the efficiency ofChina’s monetary policy in the economic cycle between the1979Asian financial crisisand the present global financial crisis triggered by the Europe. It does not only have agreat academic value, but also has important practical significance for the practice andguidance of China’s monetary policy.In order to make a study on China’s monetary policy and effect in this period, thepaper selected main macroeconomic data in the transmission of monetary policy astotal loan amount, the money supply, output and price level, it usevariable-auto-regression (VAR) model and related measurement model to set up theempirical analysis. In addition, in order to increase the accuracy of the empiricalmeasure, we used month and quarterly data of the output and money supply to set upVAR model. On this basis, this paper make a research and judgment of actualeffectiveness of the current monetary policy, and draw the relevant conclusion of thisperiod:(1)The correlation of variables in the monetary channel are low, the impulseresponses to other variables are not obvious, the transmission of the monetary policy inChina is obstructed;(2)The fluctuation of M2has obvious impact on economic growth,in contrast, the impact on price level is more evident;(3)The model that used themonthly data GDP which is calculated by industrial added value is different with thequarter’s result, so it’s not the right variable for monetary policy;(4) the time lag inChina’s monetary policy transmission is about one year.At last, according to the results of the study, this paper put forward in targetedsuggestions:To promote the effective implementation of monetary policy in China, wecan smooth monetary policy transmission mechanism by improving the credit channel,attaching importance to capital market, carrying forward market-based reform of interest rates; grasp the time delay of the monetary policy rule, so we can enhance theinitiative of monetary policy; strengthen monetary policy coordination with otherpolicies to promote and complement the effectiveness of monetary policy...