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Research On China’s Monetary Policy Effectiveness

Posted on:2016-06-02Degree:DoctorType:Dissertation
Country:ChinaCandidate:K ZhangFull Text:PDF
GTID:1109330467981392Subject:Finance
Abstract/Summary:PDF Full Text Request
As a primary policy to control the economic development, monetary policeeffectiveness has sustainability been the core of finance research. When the scholarsresearch the monetary policy effectiveness, they frequently focus on analyzing the factors,which hinder monetary policy working, from the crux of the research, removing thefactors of hindering monetary policy transmission, improving the effectiveness ofmonetary policy, and facilitating monetary policy. Therefore, the monetary policy iscapable to achieve the policy objectives of maintaining price stability, promotingeconomic development and employment, balancing international payment, etc.Based on the currency-neutral, non-neutral, endogenous, exogenous and other basicresearch and judgment, with the timeline, the paper reviews and summarizes theimplementation of China’s monetary policy since1984, emphasizes analyzing thesituation that China’s monetary policy took actions against subprime mortgage crisis, andcooperates with the “New Normal” economic development and restructuring practice.Then, the paper concludes the factors, which reduce the policy effect, such as monetarypolicy implementation environment, the transmission mechanism, the tools selection, etc.Afterwards, the author uses the least squares regression analysis, ADF test, co-integrationregression test, Granger causality test, and variables auto regression framework to haveempirical test on monetary policy transmission channel in interest, credit, capital market,and exchange, in order to explore the factors that deep impact monetary policyeffectiveness. Finally, the paper researches the new phenomenon and issues, which bothimpact the monetary policy effectiveness, and the present stage demonstrated in China’seconomic development process. The research also includes discussing other influencingfactors, like the over development of the real estate industry, over dependence on landfinance, and rapid growth of the shadow bank service. The paper considers that the ultimate goal of China’s monetary policy is to maintainmacroeconomic stability. Based on the factors in different periods, the central bank willadjust the main objective, which monetary policy concerns, at the expense of secondaryobjectives. From a long-term perspective, propelling the construction of socialist marketeconomy with Chinese characteristics is the main feature of China economy since1978.Based on that, the long-term perspective of monetary policy concerns a lot about theindicator of economy growth, which regarded as a core concerned indicator to measureeconomy stability, and reduces the attention of other indicators such as price stability insome periods. With the deepening of openness, the original monetary policy graduallyloses effectiveness in the open environment. So the central bank is obliged to innovateregulatory tools and instruments, and to take into account external balance issues, such asforeign exchange reserves, exchange rates and other indicators, as monetary policyconcerning indicators. Focusing on these issues, the paper summaries the changes ofChinese monetary policy objective system, the transition of transmission mechanism, andthe specific implementation of monetary policy. The summary supports the argument thatthe ultimate goal of monetary policy is to maintain macroeconomic stability.Based on the new perspective on the ultimate goal of monetary policy above, thepaper defines the questions of monetary policy effectiveness as the change in the moneysupply whether can control the economic growth, price stability, balance of payments andother indicators. The author takes long-term data to test different channels of monetarypolicy transmission effect. The test demonstrates that central bank has the capability toimpact the monetary policy effect by adjusting monetary policy, and the effectiveness ofmonetary policy is growing. However, there are some obstacles existing in the monetarytransmission channels. On one hand, interest rate and credit transmission channels are themain channels in that of monetary policy. However, due to the interest rate does notachieve fully liberalization, the interest rate channel blocks severer and influences weakerthan the credit one. The credit channel conduction effects directly related to theavailability of credit resources. As a result, China’s economic development and industrialrestriction are highly affected. On the other hand, capital market and foreign exchangechannels are complementary channels in the monetary policy transmission. In the view of financing model, direct financing trend to be small-scale, then it weakens the effect ofmonetary policy conduction in capital market. The foreign exchange currency triggersissuing excess currency, which enhances the endogenous currency, and then the monetarypolicy initiative is weakened. The paper also considers that monetary policy transmissionis influenced by excessive development of the real estate industry, over reliance on theland finance, and the prosperity of shadow bank services. The real estate industry caneffectively conduct monetary policy and can be affected by the policy. Its rapid growthincreases the difficulty of monetary policy adjustment and leads easily to the bankingsystem risk. The land finance alters the government departments’ financial capacity anddomination, and promotes the economic development. In the meantime, it blurs theboundaries of financial funds and bank funds, and accumulates the governments andbanks credit risk. Shadow banks and commercial banks share the similar credit creationsystem, and the shadow banking is one of the monetary policy transmission channels.The paper reviews the transition of China’s monetary policy transmissionmechanism in details, and considers that the transition deeply reflect the process ofChina’s market economy reforming and open policy. With the deepening of the marketeconomy system improvement and increasing openness, monetary policy also graduallytransfers attention from internal equilibrium to both internal and external balance. In thechoice of monetary policy instruments, reserve requirements have become China’sforemost tool. Especially since2000, the monetary policy was forced to write-off excesscurrency triggered by foreign exchange reserve. The central bank innovatively uses thereserve policy to deeply freeze excess money supply in low cost through adjusting thebalance sheet. This situation not only reflects that central bank of China effectivelyadjusts monetary supply according to the reality of China, but also shows that the centralbanks are equipped with inadequate monetary policy tools.After researching the money nature, the paper considers that money is the voucher tosettle debts relations, which thesis enriches the connotation of money and combine theconcept of money and credit. The paper raises that the difference between central bankmoney and commercial banks one is the range of credit, thus it unifies the process ofcommercial banks and shadow banks creating money and credit, and analyzes that the monetary policy, in China’s money economic system, fails to transmit in the unifiedframework.According to the research above, the author of the paper believes that multiplefactors, such as implementation of policy instruments and environment, transmissionmechanism, and the presence of transmission channels, etc., hinder monetary policytransmission. Therefore, the author proposes to initiative the actions, which promote thereformation of interest rate liberalization, guide the credit resources supply, and improvethe micro-economic decision making mechanism, to delaminate the impediments amongpolicy implementation. At the same time, in order to promote the effectiveness ofmonetary policy, central bank should dredge the monetary policy transmission channel ininterest rate, credit, capital market and exchange channel, enrich monetary policy tools,promote monetary policy shift from quantitative tools to price-based tools, searchaccurate and measurable monetary policy transmission operating and intermediate target.In addition, in the process of monetary policy implementation, the central banks andgovernments should concern about the credit money and risk in the real estateconcentration industry, the excessive government debt caused by the land finance, theshadow banking monetary policy transmission and the business itself risk accumulation.Under the premise of multiple goals, goals should be focused and targeted to carry outcontrolling, to achieve, and to balance the multiple objectives.
Keywords/Search Tags:Monetary policy, Transmission environment, Transmission Mechanism, Effectiveness
PDF Full Text Request
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