The Study Of Effectiveness Of Monetary Policy Under The Condition Of Currency Mismatch

Since the developing countries are participating in an opening economy with the background of economic globalization, it is inevitable for them to be thrown into the plight of currency mismatch which is induced by discrepancy between money of accounts of assets and liabilities or between those of revenue and expenditure. Then currency mismatch has thus become a generally existing phenomenon within developing countries. Currency mismatch of large scale will possibly retard the steady implementation of macro-economic policies in developing countries, and severe currency mismatch may even doom them to financial crisis. Based on previous studies, this paper will embark on a relatively systematic and insightful study of the impact on effectiveness of monetary policy under the condition of currency mismatch in developing countries. And it will also be revealed from a theoretical perspective on the inner mechanism how currency mismatch shall influence on the monetary policy of China with the appreciation of ChiNa Yuan. To close the paper, some proposals will be offered on issues, which are related to change of monetary policy intermediary targets and establishment of monetary policy rules.This paper is arranged with 3 sections which totally consist of 6 chapters.First section includes first two chapters. In chapter 1, the studied issues will be put forward and the background and academic value of the study will be explicated; in chapter 2, related literature review will be presented. "Literature Review Part 1: Theoretical Foundation of Effectiveness of Monetary Policy", it first reviews the related studies on effectiveness of monetary policy, and then introduce the theoretical foundation of monetary policy targets; "Literature Review Part 2:Literature Review on Currency Mismatch", it separately introduces the theories of cause of currency mismatch and the impact of currency mismatch on economy.Second section includes chapter 3 and chapter 4. In chapter 3, it carefully studies the impact of currency mismatch on monetary policy, which covers the issues like monetary intermediary targeting and transmission mechanism of monetary policy; in chapter 4, Japan and those most involved countries in the Southeast Financial Crisis will be discussed as examples to give analysis on impact of monetary mismatch on monetary policy, and then obtain related enlightenment.Third section includes last two chapters. In chapter 5, it analyzes the challenges posed to effectiveness of present monetary policy in China, and analytical regression methodology will be employed to testify the real impact of currency mismatch on effectiveness of monetary policy in China; In chapter 6, given that currency mismatch has become frequent in developing countries in present international monetary system, it proposes some feasible suggestions on how to enhance the effectiveness of monetary policy in China—it suggests China adopts interest rate to replace money supply as the monetary policy intermediary target and shifts our monetary rules to inflation targeting.Our points of innovation includes:(1)It analyzes the impact of currency mismatch on monetary policy from a perspective of developing country and this distinguishes from traditional monetary policy studies on developed countries, on which the mainstream of economics focuses; (2)Available data are pooled from 2001.1 to 2008.4 on a quarterly basis to measure the degree of currency mismatch and it establishes a quantitative model of monetary mismatch and effectiveness of monetary policy, so this provides a firm foundation to support the conclusions.