| In market economy, monetary policy procedure takes the way of "Government manipulates markets, Markets induce firms". Because monetary policy has obvious time-lag effect and its effects depend on market-participants' responses to the central bank's policy, to enhance the efficiency of monetary policy, it's necessary to set intermediate targets between the instruments and goals.The special roles played by the intermediate target decide that the target should meet these standards: 1) It should be controllable for the central bank. 2) It should have high correlation with the goal of monetary policy. 3) It can be measured timely by the central bank. 4) It should be helpful to strengthen the duties on the central bank. 5) It should be helpful to enhance the transparency of monetary policy. In one word, Control lability Correlation and Measurability are main standards the economic/financial variables that serve as targets must meet. The question this paper discusses is just the choice of intermediate targets in China.In the period of planned economy, the economic resources were allocated by the administrative plan. Few variables could be used to observe whether the economic operation was as usual. People could only analyze the ratio of currency in circulation to the transaction of retailed commodity to find whether the aggregate demand matched the aggregate supply. So, the currency in circulation served as intermediate target of monetary policy. In 1985-1993, the central bank relied on credit-control plan to keep the balance of aggregate demand and aggregate supply. The credit-control plan shared a lot of features of planed economy, it contained not only figures of aggregate credit, but also structural figures which required how much capital should be allocated to specific areas such as agriculture or transportation. In 1993, the monetary policy goal was decided to be "keep the value of money, and contribute to economic growth in this way". At the same time, The People's Bank of China began to turn to money stock. In 1996, the Bank confessed that it chose M, as intermediate target of monetary policy, M0 and M2 being the observed variables.But how did these variables meet the standards that intermediate targets should meet?In the period of planned economy, because the currency circulation was confined strictly, and the economic and social structure was stable, the currency in circulation could keep a stable relation with the demand for consumed goods. So, it could serve as a useful indicator to predict whether the economy was at balance, in 1953-1957, the ratio of currency in circulation to the transaction of detailed goods was maintained at about 1 '. 8, the aggregate demand matched aggregate supply well. In the period of "Great Leap", the ratio jumped at about 1 : 5.5. At the same time, the economy faced great inflationary pressure, and the inflation reached 16.2%(PRI) in 1961. Later, with the restructure of the economy, the ratio declined to 1 I 8 again. In the period of "Cultural Revolution", the economy was damaged seriously, market supply was short for demand, the ratio rose above 1 I 8 for the second time. But because of frequent disturbance from political pressure (Political Movement Leader's Mind and so on), the plan of currency increasing was seldom implement seriously.In 1985-1993, because there were intensive investment incentives, the credit-control plan had not been strictly obeyed. In most years, the real credit growth deviated from plan to the extent ofabout 20% of the planed growth rate. In 1992, The Socialist Market Economy was claimed to bethe goal of Chinese economic system reform. The credit plan began to be replaced by money stock.Since 1994, The People's Bank of China began to use money stock as the main instrument to control the growth of aggregate demand. Based on the annul data of money stock growth and GDP growth in 1979-2001, We find that the correlation parameter between the growth of M0> M,> M2 and the growth of GDP is 0.614, 0.305, 0.54 respectively! The growth...
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