Analysis Of Sectoral Effect Of Monetary Policy

Monetary Policy, as one of the most important tools of macroeconomic regulationand control, is becoming more and more important in our country’s economicrestructure. Hence there should be a deeper reorganization in the monetary policy.Sectoral effect of monetary policy which is a significant part of the asymmetric effectof monetary policy, on the other hand, has a considerable impact of the upgrading andrestructure of our country’s industrial structure and the elimination of backwardproduction capacity by macro-control means. By summarizing the theoretical reasonsof sectoral effect of monetary policy, this paper builds an unbalance date panel modelusing the financial data variables of the public traded firms in A stock market to studythe sectoral effect of monetary policy in China.Firstly, this paper summarizes characters of China’s monetary policy anddifferences in the monetary policy transmission channels comparing with developedcountries. The conclusion in this part is that because of the imperfect financial market,the credit channel is the main transmission channel in China and the interest ratechannel is not functional.Secondly, these theoretical reasons of the sectoral effect of monetary policy arestudy by the view of transmission channel. The result suggests that in China, the mainreason of sectoral effect of monetary policy is the different impact on individualindustries by the credit channel. Besides, the interest rate channel is becoming moreand more important in the mechanism of monetary policy.Thirdly, basing on the above conclusions, this paper builds an unbalance paneldata model using public traded firms’ quarterly financial data in seven differentindustries. The results of this model prove the existence of sector effect of monetarypolicy in China as well as the fact that the interest rate channel does not have obviousimpact in these public companies. The list of industries considered in this paperincludes Food Processing, Mining, Textile, Construction, Real Estate, Transport, andMetal Processing; seven sectors.Finally, this model is mended by adding interaction variables consisted by thebalance sheet variables and M2. Using this new model we can study the differentimpacts of these financial variables on individual company’s credit ability. In theresult, this paper find that balance sheet characteristics, especially si ze, influences the impact of policy. Mixed results are found in this paper for firms’ working capital, andleverage ratio with respect to the operation of the credit channel. Naturally themagnitude and direction of the impact of these balance sheet variab les is differentaccording to the sectors they are belonging to. Advices on improving the efficience ofthe transmission of monetary policy are also given in this paper basing on the resultsof this paper’s research.