The Research On The Regional Effects Of Monetary Policy In China Based On The Perspective Of Financial Development Convergence

A country’s monetary authorities control macroeconomic performance indirectly through the development and implementation of monetary policy,but a unified monetary policy often produces different effect in different areas of domestic policy,which is a phenomenon known as the regional effects of monetary policy.Regional effect of monetary policy in recent years increasingly becomes a hot research question of monetary theorists,and scholars at home and abroad have reached a general consensus on the existence of the regional effects of monetary policy,but the causes about the regional effects of monetary policy still remains controversies.This paper argues that the existing research on the causes of regional effects of monetary policy are typically produced in an optimal currency area theory or a new Keynesian theory of credit rationing as the theoretical basis,but these two theories have shortcomings that separate entity factors and financial factors which may lead to the regional effects of monetary policy,only consider the impact of structural differences of certain factors,and ignore the study of dynamic factors.In view of this,this paper researches the effects of dynamic changes of regional development financial differences to regional monetary policy effect in China,based on the perspective of financial development convergence.Based on the theoretical analysis,this paper proposes a hypothesis that financial development convergence of a region is faster,the effectiveness of monetary policy in the region is greater.In the following empirical part,firstly,financial development levels of China’s eight major economic regions are measured.Followed by the use of Theil index decomposition methods,the degree of financial development disparities within regions and between regions are measured.Then through the use of σ convergence test and β convergence test methods,regional financial development convergence are tested,and by constructing a panel VAR model and impulse response analysis,the existence of regional effects of monetary policy our is confirmed.Next,through Person correlation coefficient test,the relationship between regional financial development convergence speed and the regional effectiveness of monetary policy is researched.At last,combined with the robustness test,the proposed research hypothesis is proved.This paper argues that,on the one hand,monetary policy is formulated based on the theory of Keynesian demand management traditionally,which is in order to "iron out the economic cycle",but with the continuous improvement of overall level of financial development,effectiveness of monetary policy will tend to decline.On the other hand,the central bank can formulate monetary policy without regard to the possibility of generating different policy effectiveness in different areas,but it should not only offer monetary policy,but can also offer other financial policies.In this way,this paper proposes to raise the regional financial development convergence to enhance the effectiveness of monetary policy in the regions,and to achieve the central bank’s macroeconomic objectives.