The Relation Between Money Supply And Interest In The Background Of Interest Marketization

As an important means of macro-control by the central bank,monetary policy plays an irreplaceable role in the development of national economy and the realization of economic development goals.Since 2012,China’s economy has entered a new stage of development.It has entered a new normal period of economic development in an all-round way.The arrival of this stage also objectively raises the requirements for the quality and efficiency of macro-control policies in economic development.It emphasizes that the operational orientation of monetary policy should focus on the principle of "total adjustment and directional implementation simultaneously",and adopt "camera regulation and refinement".The way of quasi-regulation,timely "pre-adjustment and fine-tuning,risk prevention and control",seize the main problems and effectively enhance the fluency of monetary policy transmission channels and the effectiveness of the mechanism.The prerequisite for realizing this operational orientation is to clarify the transmission channels and operational mechanisms of monetary policy in China,and to explore in depth the dynamics of the main indicators and the internal links between them in the process of implementation and transmission of monetary policy.It is the effect on the effective implementation of monetary policy.With the continuous deepening and development of China’s financial market,a monetary policy regulation system centered on the central bank and radiating the entire financial market has been gradually formed.Under this system,the central bank’s monetary policy regulation mechanism mainly takes the money supply or interest rate as the intermediary target,and takes the discount rate,deposit reserve rate and open market business as the operation means,through manipulation.Control policy tools to adjust intermediary objectives,and then achieve the ultimate goal of macro-control.In the whole process of regulation and control,according to the classical IS-LM theory,changing the initial money supply will directly lead to the change of interest rate in the money market,and then through the interaction between the money market and the product market to achieve the final output goal.It can be seen that the transmission chain composed of money supply and interest rate runs through the whole process of monetary policy regulation and control,and becomes an important prerequisite to determine the performance of the central bank’s macro-control policy.Therefore,exploring the actual relationship between money supply and interest rate has a far-reaching impact on improving the effectiveness of monetary policy.From the perspective of practical research on the relationship between them,the key to determine the validity of the research results is to select the variables of marketization reasonably.Before the marketization of interest rate,the index of interest rate in China was not mature enough,and the interest rate could not correctly reflect the actual situation of money supply and demand in the market.Therefore,the relationship between interest rate and money supply was not clear enough,which led to many doubts about the effectiveness of money supply-interest rate transmission by scholars.This also promoted the marketization reform of interest rate in China to a certain extent.Process.On October 23,2015,the Central Bank of China announced that it would no longer set a ceiling on deposit interest rates of commercial banks and rural cooperative financial institutions.The introduction of this policy also marks the basic realization of the marketization of interest rates in China and the formation of mature interest rate indicators under the conditions of marketization.Then,under the background of the basic realization of interest rate marketization,what is the actual relationship between money supply and interest rate in China? Is it a typical negative correlation in theory? Does it conform to the simple linear conduction given in previous literature or does it have more complex nonlinear effects? What is its impact on the effectiveness of monetary policy regulation in China at this stage? These problems will be further studied and verified in this paper.Therefore,under the background of interest rate marketization,from a new non-linear perspective,combined with relevant theories,this paper selects the monthly data of 2015-2018 to make an empirical analysis of the relationship between money supply and interest rates,estimates the results by constructing TVECM model and impulse response analysis,and gives relevant policy recommendations to improve the effectiveness of monetary policy regulation in China at this stage.