A Study On The Transformation Of China 's Monetary Policy From The Perspective Of Opening To The Outside World And New Normal

This paper mainly studies China Monetary policy transition with the perspectives of the Opening up and the New normal. Monetary policy is one of the two important means for national macroeconomic regulation and control. The central bank should change its monetary policy with the development level of country’s macroeconomic. Now,the PBo C’s monetary policy is not only different from the "norm policy" played by developed countries, and also the regulation mode used by China’s central bank at the end of last century. In fact, our monetary policy has been changed, and is changing. As China’s econmomic scale growing fast, its structure is changing rapidly. That induces the PBo C to adjust its policy as a response.After entering the new century, the levele of China’s opening up is becoming deeper and deeper, especially the time after China formal entry into the WTO.The global market provides a strong demand for our merchandise trade,foreign capital and advanced technology flow into China also promoted the economic development. Consequentially, the rapid development has attracted greater international capital to entry into China. That make sense. Growing faster and then opening up more. That forming a virtuous circle. With the ever increase of the degree of opening to the outside world of China, the monetary policy influence of external economy is increasing, mainly fouce on liquidity and capital flows.Nowadays, international balance of payment of China is moving towars its equilibrium, external and internal economic environment change require the monetary policy transition. First of all, the pattern of international balance of payments from the "double surplus" turn into "a small surplus of current account with a small deficit of capital account ".That highlights the domestic liquidity supply problems on the one hand, and on the other hand, that provide favorable conditions for monetary policy transition.This is because the decrase of external liquidity injection make China’s central bank have to build a stable supply mechanism for liquidity of China’s economic development.At the same time, with the external economic balance arriving equilibrium, the monetary policy shocks created by the external will diminish, PBo C can make effective policy adjustment according to the need of domestic economy with more decision-making power. Second, our country economy turn into the "New normal", under the "three major trends", the economic growth ratio fell off, structural adjustment and the accumulation of risk needs to be gradually digested. Underthe "three major trends", the PBo C should accelerate the transformation of monetary policy, built the steady supply of adequate liquidity without a strong stimulus, imporve the macro-prudential supervision measures to guard against financial risk, pay attention to regulation innovation and monetary tools to promote economic structure transformation.The central bank’s monetary policy in developed countries is characterized by single objective, single tool. Theoretically, central bank adjust benchmark short-term interest rates in order to maintain price stability, this is the "Normal" monetary policy. China’s current monetary policy is not fullfill the "Normal" condition, this is because China’s marketization reform has not yet been completed, the financial system needs deepening. At present, China’s monetary policy is characterized by a combination with multiple targets and various tools, namely quantitative indirect control and price directly controls to accomplish the objectives of economic growth, price stability and full employment, balance of payments and financial stability. Since the reform and opening up, China’s monetary policy has been changing. The logic of transformation is line in with the advancement of market-based reform, turn the monetary policy from direct control to indirect control. Today, the essences of transformation is change the price-type regulation towards the quantitative regulation, and to "Normal" control in the future.The first chapter is the research literature review on montary policy. We review the literature from three aspects, the theory development of monetary policy framework、content and conduction. The first issue of monetary policy theory is monetary neutrality. The unified view of economists is that monetary is surely not neutral in the short-term. Then we analysis the monetary policy tool. The Taylor formula which is only consider the output gap and inflation gap, expanding to prospective Taylor formula which also included expected factor, and then to Taylor formula under the open condition, and then to nonlinear Taylor formula with system switching. Recently, the DSGE model get more and more attention and be used widly. Second, we reviewed the contribution of predecessors, discussed the content of the monetary policy framework, the tool system, the transmission mechanism and policy rules. The monetary policy in China on theory and practice are reviewed,and we fouce on the administrative regulation of market regulation transformation.In the second chapter, we first introduce the main open theoretical models of monetary policy briefly, and expand the model to explain our country’s monetarypolicy practice for decades. In this paper, we use the Mundell-Fleming Model to analysis the relationship between opening to the outside world and monetary policy in recent decades.We done that form three aspects: small countries vs great powers、fixed exchange rate vs floating exchange rate, capital flow vs no capital flow. We considering this three dimensions for the reason that China has growing form the small eveloping countries into a large trade nation, the exchange rate system has been changeing and China has gradually open capital account under the adjustment of monetary policy. Analysis combined with 08 financial crisis is provided, we figure it out that the global financial crisis had a huge impact on our economy.At the same time, China’s monetary policy response to that crisis also make world economy improve.Next, this paper analyzes the favorable conditions of monetary policy transition provided by international balance of payments of China and China’s new stage so called the "new normal". Opening to the outside world, the double surplus dominated the expansion of monetary liquidity in China, and changes of balance international payments make more initiative of the central bank cause it can supply monetary liquidity more reasonable, it make monetary policy transition more independence. At the time under the "new normal", the pressure of economic growth and financial systemic risk, domestic economic structure transformation, all of these require monetary policy adjustment to support the new condition. And then, this paper summarizes the international experience of monetary policy transformation, make a monetary policy comparative analysis between China and developed countries.The comparative issue inculds transition background, direction and steps.The fourth chapter studies the connotation of China monetary policy transition under the background of changing environment with both internal and external economic.We mainly analyzed two issue: one is the logical mainline of monetary policy transformation, from the administrative regulation to market regulation and control, from direct control to indirect control and from quantitative regulation to price regulation.The other is the main content of the transformation of monetary policy, including monetary policy goal, policy tools, transmission mechanism and the central bank’s expectations management. We talk about policy goals with particular emphasis on the importance of financial stability, policy tools with the analysis of the innovative monetary tools and "interest rate corridor" model, the transmissionmechanism with risk taking conduction and price conduction, the expected management with analyze in detail of the impact of monetary policy transparency. After the theoretical analysis of monetary policy transition, we take the empirical analysis of the theory above. First, we make a description of the data this article we will use, these data include macroeconomic history data and the central bank’s monetary operation data. Second, we take the test of liquidity management of China’s central bank monetary policy and the transmission mechanism. As with liquidity management empirical, we make a quantitative sort for the central bank liquidity operations, using order count model to empirical test central bank operating rules of the target inculdes economic growth and inflation. The results show that the central bank’s liquidity management make a strong reaction for the output gap, followed by inflation. In the transmission mechanism empirical, we make a game theory model of commercial bank-central bank. With the deduced equation, we take simultaneous equation model and GMM-HAC method regression analysis. The regression results show that the central bank’s quantitative regulation efficiency is declining, commercial bank’s benefit maximization will affect policy conduction. The central bank need to consider the risk-taking behavior of commercial banks when make the monetary policy.Finally, we concludes that, at the present stage, the suitable transformation way is that,on one hand China’s central bank should gradually fade out quantitative target control, on the other hand strengthen price regulation and monetary policy conduction in order to pursue "normal" monetary policy along with the formation of the mechanism of interest rate marketization and RMB exchange rate and financial market development.