Monetary Policy And Economic Fluctuations

With the frequent outbreak of the economic crisis, the primary objective of the policygovernments and central banks developed is transforming from mere pursuit of highgrowth to maintain stable economic growth. Monetary policy is one of the most importantmeans of macroeconomic control. In theorists, the debate between the monetarist "rules"and the Keynesian "discretionary" promote the development of the theory of monetarypolicy operations. In practice, the national central banks to take a more Keynesiandiscretionary operation. However,“rules” ingredients also be contained.In this paper, the theoretical and empirical analysis to study China and the UnitedStates monetary policy practices of the impact of fluctuations in the economic cycle. BPfilter is used to decompose variable trend item and fluctuation item. Then, GMM estimatorand VAR model are selected to analysis the impact of discretionary monetary policy andRule-based monetary policy on economic fluctuations. Concluded that the effect of"discretionary" component in the monetary policy of the volatility of real GDP growth andinflation of the two countries were significantly greater than the "rules" component. Itshows that, whether it is in the capitalist market economy country or countries of thesocialist market economy, rules-based monetary policy operations are more conducive toeconomic stability. By comparing the practice of monetary policy in the two countries,found that the U.S. economy is more stable than China’s economy, suggesting that thedeveloped financial markets is conducive to the stability of the economy. Therefore,countries should choose monetarist propositions "rules" type of monetary policy practicesto reduce the volatility of money growth, in order to reduce the negative impact ofmonetary policy on economic fluctuations.