Research On Effect Of Quantity And Price Based Monetary Policy Instruments In China

Currently, the world economy is closely connected since the further developmentof economic globalization and financial globalization. The sustained、 stabledevelopment of one country’s economy depends not only on the implementation of itsown monetary policy, but also on the macroeconomic developments. So, a countryneeds to take timely measures to control the economic development. How to implementsuitable monetary policy has drawn the attention of every country. In this context, thispaper analyzes and compares the effectiveness of quantitative and price based monetarypolicy tools, and gives some advice to the improvement of effectiveness of monetarypolicy tools.Firstly, this paper expounds the content of monetary policy from a theoretical point;Secondly, this paper analyzes the application and effectiveness of two types of monetarypolicy tools；Thirdly, considering the application of the monetary policy tools and theavailability of the data，this paper selects the legal deposit reserve ratio and the one-yearbenchmark lending interest rate as the representative of quantitative and price basedmonetary policy tools，selects the quarterly data from2001to2014，then we establishesthe VAR model to analyze the influence of two tools on the GDP and price index. Theempirical results shows that：two tools have great influence on output and price index，and the impact of interest rates on output and price index is less than the legal depositreserve ratio, but the contribution of the interest rates is consistently increasing. Whichshows that as China’s interest rate is determined by market，it will play a more and moreimportant role. So, we should pay more attention to the price based monetary policy.Finally, this paper puts forward some suggestions: The central bank should constantlyimprove the legal deposit reserve system，promote the interest rate determined bymarket, promote the transition of the intermediate target of monetary policy，clear thetransmission channels of monetary policy in order to improve the effectiveness ofmonetary policy and the stable development of the macroeconomic.