The Effect On Monetary Policy Between Velocity Of Money And Inflation Expectation

The paper starts from the shifting of velocity of money in2005～2010, and analysis the change on the influence of the monetary policy transmission mechanism. Through the observation, we find that the velocity of money’s shifting exert hedging on the result which monetary policy control the level of city consumer price partly. After Empirical analysis shows that, the shifting direction of velocity of money is opposite to the direction of monetary policy. And then, we analysis the influencing factor of the velocity of money, at the same time we put forward corresponding policies and suggestions about the phenomenons.Then we start from the phenomenon that money velocity’s change is opposite to monetary policy effectiveness, proposing the source of velocity of money inverse——The result of public’s rational expectations, through analysing that expected inflation’s circulating impedes monetary policy which controls the the phenomenon and conduction mechanism of the mechanism of actual inflation,in order to discuss the reason for the rational expectations of Inflation for Velocity of Money’s Inverse Shifting. For the reason, considering the condition that there has bubbles in capital stock market,we set different aims and the strength of the monetary policy criterion equations, and survey the fluctuation of output gap and inflation in the conditions of monetary policy instantaneous impact. From the simulated result, we reach a conclusion that without regarding to share price and strict money policy is the best choice. Put forward appropriate policy and advice for the conclusion.