A Comparative Study On Inflation Targeting And The Money Policy With Interest Rates As The Intermediate Target

At this stage,with the deepening of the interest rates marketization in China,the choices of China’s money policy are becoming increasingly important.China has adopted the credit amount,exchange rate,money supply as the intermediate target.The increasingly changing economic situation requires that China should reset the money policy.By the international experience,the inflation targeting and the money policy with the interest rates as the intermediate target arouse a new round of controversy. Some economists believe that we should weaken the intermediary target concept, and should implement the inflation targeting,which is sensitive to changes in other economic variables.Some economists argue that we should implement the monetary policy with the interest rate as the intermediary target, after all, in our country, the control ability of central banks to interest rate relatively strong (here the interest rates refer to the benchmark deposit and lending interest rates etc.).Given that the two monetary policies have not been specific implemented in our country, this paper summed up the possible implementation of the two in our country through comparison and analysis.According to the possible implementation of the two,the paper gave some monetary policy proposals of our country.In the second chapter of this paper, when we analysis the inflation targeting, we use the method of comparative analysis about the20foreign countries.The imminent implementation of the inflation targeting system is divided into two types,that is developed and developing countries.The developed countries include Australia, Britain, Sweden,Czech,Finland, Spain, Canada, Iceland, Norway, New Zealand,Israel.And the developing countries include Poland, Chile, Brazil, South Korea, Thailand,Peru,South Africa, Mexico, Philippines.Firstly the paper compared their inflation targeting implementation time, target selection, target interval,then we can get that most of them have adopted CPI as a target selection, and the target ranges of span are also different.Secondly, the paper compares their goal setting body, open degree, policy deviated from the target description, the government preferred terms and public requirements to compare their central bank independence, transparency, accountability for comparison.Finally,the paper compares their inflation rates before and after they implement the inflation targeting so that we can know the effect of implementing the inflation targeting.In the third chapter of this paper,when we study the money policy with the interest rates as the intermediate target,we introduce the country who implemented the interest rates policy successfully--the United States.The first part mainly introduces the basic American interest rate policy, that is, the Taylor rule, including the traditional rules and additional expected Taylor Taylor rule.In the second part,according to the status of interest rate policy implementation of America and American money market interest rates and deposit and loan interest rates trend,this paper analysed the implementation effect of interest rate policy.After analysing the inflation targeting international comparatively and researching the interest rates policy in America,in the fourth chapter, this paper summarized the merits of the two monetary policies and the enlightenment to our country from the international experience.Through the analysis,we conclude the advantages of the inflation targeting.They are that it is not based on the stable relationship between money and inflation,it has high transparency and can be understood by the public easily,can be good to prevent the time inconsistency problem and strengthen the central bank’s responsibility.While,the disadvantages are that the signal is not timely,poor flexibility,possible increased volatility and the output of the low economic growth rate.The advantages of using interest rate as the intermediary target are strong in controllability,measurability and high correlation,while the disadvantages are that the monetary authorities have to rely on this monetary policy,it can’t be a single intermediary goal and it is not conducive to the marketization of interest rate.In the fifth chapter this paper made a comparison of implementation possibility between the two monetary policy in our country.Because these two kinds of monetary policies are not implemented in our country, so we only introduce the current situation of our country in terms of inflation monetary policy and interest rates marketization.The former compared cumulative growth rate of China’s2003to2013inflation rate and GDP trend.And we put forward the theoretical foundation and conditions of implementing inflation targeting, introduced our country in the aspects of inflation monetary policy schedule, and put forward its shortcoming.The latter compared the loan interest rate changes with the adjustment of China’s economic.Through the introduction of all previous deposit and loan interest rate adjustment in our country, this paper analysed China’s interest rate changes to analyse the effect of the trend of interest rate movements to China’s economy.According to the International experience and China’s economic situation,we summed up the future development direction of China’s monetary policy:inflation targeting as the main policy,interest rate policy as a supplement.That is to say,we dilute the concept of intermediate target,because inflation targeting makes the price level in China remains stable.And interest rates could be used as a monitoring index, namely we can use interest rate policy to make a specific regulation.To explain this comprehensive monetary policy, according to the current economic environment in China, money supply has not as the intermediary goal of China’s monetary policy.Though in our country implementation conditions of inflation targeting are not well enough, it can be as the development direction of China’s monetary policy.The degree of China’s interest rate marketization is not high but interest rates have a better function to reflect the state of the economy, and it can correct for the effect of monetary policy.In the sixth chapter, in view of the situation in China,we put forward some suggestion about which monetary policy our country should take.These suggestions included that the central bank should continue to use various monetary policy tools,diversify macro-control policy,speed up the improvement of China’s foreign exchange management system and accelerate the interest rate marketization reform in China as well as the overall environment at home and abroad.