Study On The Efficiency Of Monetary Transmission Mechanism

The history from the early 1900's has witnessed the establishment and development of the monetary transmission mechanism. There are lots of theories expounding the transmitting methods as interest rate, money supply, assets price, credit, security market, etc. And how to improve the efficiency of them has become absorbing to the experts, researchers and governors with the acceleration of economy development and globalization. The related researches in China began in early 1990's and mushroomed in late 1990's. There are many factors obstructing the transmission mechanism of monetary policy in China:the lengthy process of the commercial banks, the transfer of the PBC into a full-fledged central bank the deep-rooted impart of highly centralized planned economy on the dilemma in the state-owned enterprises reform, the traditional idea of individual's investment and the margin of income from expectation.Initiation with the history of the monetary transmission mechanism theories, the essay describes the factors and procedure of transmitting system, narrates the researches done by experts and scholars. The analysis recalls the development of monetary transmission mechanism in China discloses main problems and analyses the systematic factors in such a transmission mechanism.By establishing a four-dimension model, the essay clearly explains the factors related to the efficiency of monetary transmission mechanism in China. With different choices of monetary policies and tools, the central bank transmits information through four channels namely interest rate, money supply, assets price and credit combining the channels properly to affects the short-term goals and terminal goals, thus forming the chain of sending out and feeding back important messages. Realizing the serious consequence of potential credit crisis in China, the paper puts forward the ideas to establish a social credit system, to emphasis the importance of credit reputation, to improve the legal protection, to update the operational system, to ameliorate the criterion of credit estimation index.The paper makes positive analysis and research on the above four channels and then comes to meaningful results. The transmission of the monetary policy through the interest rate channel in China is inefficient because the fluctuation of interest rates surges up Chinese economic development slightly, with only 0.40 percent increase of GDP. When interest rate increases one percent. The increase of money supply may accelerate the investment and consumption but could not affect the prices in the security market. Although the affection of the security market is not as obvious as we expected, its performance will be improved and play important roles as one of the main channels of Chinese monetary policy together with the traditional banking transmitting method. The key of monetary policy is to establish an effective transmission mechanism. The paper puts forward the measures and suggestions on the construction of an efficient transmission mechanism of monetary policy on the basis of theoretical analysis and practical researches. Bringing forward an affection operational strategy in accordance with the construction of a dimensional channel. It also suggests of the PBS's distribution according to economic circles and the certain rights in choosing monetary policies according to the reality in different region.