The Research On Balance Sheet Transmission Mechanism Of China’s Monetary Policy

Monetary policy transmission mechanism is a process that the central bank uses monetary policy tools to achieve the macro-economic objectives, including the change of monetary supply and other monetary policies that affect real and nominal variables. In fact, monetary policy transmission analysis is based on the framework of monetary policy effectiveness. The ultimate goal of analyzing monetary policy transmission mechanism is to realize the effectiveness of monetary policy that influences output and price. Balance sheet transmission mechanism is presented by Bernanke and Gertler in 1995. They pointed out that this transmission mechanism was that the monetary policy can affect the enterprise’s net assets, mortgage assets and cash value. In the environment of information asymmetry, the bank would change assessment of the business risk which makes enterprises more difficult to get the loan. In final, it will affect the monetary policy objectives.This paper firstly introduces the research background, significance and method. Secondly, this paper mainly summarizes the domestic and foreign literature related to balance sheet transmission mechanism of monetary policy. The third part expounds the theory of balance sheet transmission mechanism as well as further discussions on some issues concerned. In the forth chapter, this paper makes an empirical analysis with model having been found to analyze data of industrial enterprises above the designated size in China on the basis of theoretical analysis, which confirms the existence of balance sheet transmission. In the fifth chapter, the paper draws a conclusion out of empirical research and offer proposals to existing problems in the transmission process. Through empirical analysis, we may infer that Chinese Monetary policy instruments are influential to business investments and GDP to a certain degree, but they don’t work well in lessening lending costs. At last, relevant policy suggestions are put forward for improving the effectiveness of enterprise balance sheet transmission mechanism. The advice for reducing the obstruction in the transmission process is that we need to change the relationship between bank and enterprise and to improve social credit and related legal environment.