A Study Of Effectiveness Of Macroprudential Policy In China

American financial crisis broke out in2007and became a international financialcrisis quickly. It was a “once-in-a-century” crisis because of its wide range ofinfluence and serious damage. The international economic and financial circles fullyrealized that it’s not sufficient to maintain financial stability only with monetarypolicy and micro-financial supervision after they reexamined the frequent financialcrisis in recent years. The international society has conducted a series of importantreforms on the mode of macroeconomic regulation and financial supervision since2008. Forming the macroprudential policy and quickly putting it into practice is oneof the most important reforms. Although the loss of China’s financial institutions issmaller in the financial crisis, a complex and difficult task to prevent and resolve thecurrent financial systemic risk must be faced in the transitional period of China’seconomy. With the implementation of China’s macroprudential policy, the academiaand regulatory authorities begin to pay attention to the effectiveness of the policy.Starting from a profound change in the global economic and financial theory andpractice that was triggered by the current international financial crisis, the paperexplains the historical evolution and theoretical foundation of macroprudential policy,illustrates the latest practice of macroprudential policy at home and abroad, andmakes a literature review of the effectiveness of macroprudential policy from fiveperspectives. In view of the fact that the management object of macroprudent policyis the systemic risk, combining the domestic and international economic and financialsituation, the paper finds that there are some the potential factors could currentlygenerate some systemic risks in China, particularly in the real estate and localgovernment debt. The indirect financing proportion of China’s financial market islarge. In view of this characteristic, the paper uses the annual data of37China’scommercial banks and a dynamic panel model. Then it finds that the China’scommercial banks’ capital adequacy ratio was adjusted procyclically and the financialcrisis made the banks reduce the procyclical adjustment partly, which was ofasymmetric effect during the upside period and downside period.The new Keynes DSGE model is an effective tool to research the effectiveness of some policy. This paper establishes a multi-sector DSGE model that contains thefinancial accelerator and takes Loan to Value as an example to research theeffectiveness of the counter-cyclically macroprudential policy. The empirical analysisfinds that Load to Value has the strong counter-cyclical effect, the rule ofnon-forward-looking Taylor rule type that has single target is optimal, and themonetary policy and Load to Value are responsible for price stability and creditstability respectively, which is the optimal relationship between two policies. As themajor cause of international financial crisis, Shadow banking is the major field ofimplementing the macroprudential policy. China’s shadow banking is different fromthe international one to some extent, but has been developing rapidly in recent years.The paper makes use of SVAR model and some macroeconomic data, such as socialfinancing scale etc. It finds that the development of China’s Shadow Banking isprocyclical, while the development of China’s Shadow Banking has a negativeinfluence on GDP growth, result in a fact that some of Shadow Banking funds arecirculating among the Shadow Banking and hinder the development of the entityeconomy. Therefore the supervision on China’s shadow banks should be strengthenedfrom the perspective of improving the effectiveness of macroprudential policy. Thedevelopment of China’s shadow bank should be guided, not blocked. Its systemic riskshould be eliminated during the process of speeding up China’s reform ofmarket-oriented interest rate.Finally, some reform suggestions are put forward to improve the effectiveness ofChina’s macroprudential policy. The situation that many financial supervisiondepartments are responsible for financial stability at the same time should be changed,a financial stability Committee of State Council level should be established as soon aspossible, the collection and sharing mechanism of financial statistic data should beimproved, the supervision on China’s systemically important financial institutionsshould be strengthened to solve the problem of "too big to fail", the transparency ofpolicy should be improved and the expectation management should play a role inmacroprudential policy, to raise the international cooperation level of China’smacroprudential policy from safeguarding national interests and financial stability.