The Research Of Improving Monetary Policy Transparency Operation And Effect

Since the 1990s, mystery and surprise of central bank operation has given to transparency and openness. Many countries have got good policy effects after improving monetary policy transperancy. In recent years, China's financial authorities have taken measures to enhance the transparency. From opaque to a certain degree of transparency not only embodies the progress of concept of macro-economic control, but also meets the trend of the central bank system. With the trend of marketization of our economy, the improving policy performance based on increasing transparency is more and more prominent. However, China is now in the special period of economic transition. Many aspects of system and economic obstacles restricted the effects of transparency. Still there are lots of problems about how to communicate. This paper started from the study of transparency concept, comparativly analyzed the manners and effectiveness of transparency in the developed countries, contructed the policy framework of central bank communication that shaped public expectations, applied China's data and model to test our communication effects, then get the suggestions about improving transparency in China.In order to analyze the problem, this paper is constituted by 3 parts. The main structure and viewpoint is as follows:Chapter 1 is the introduction of the whole paper. The research background, research literaturea are explained, and the significance, methodology and main innovations of this paper are also introduced.Chapter 2 summaries the historical evolution and inherent characteristics of monetary policy transparency.Along with the central bank independence and inflation targeting, monetary policy transparency have been constantly expanded and deepened. According to the current theoretical and empirical researches, countries around the world have attached great importance to the public expectations. Central bank communication is one of the most important means to guide expectation.Chapter 3 interprets the theoretical basis of communication improving monetary policy effects. Monetary policy is transimissed through expectation channel, not interest rate channel. Communication will help control inflation and stabilize the public expectations, thus affecting the term structure of interest rates. Besides, communication can coordinate multiple equilibrium and reduce the uncertainty caused by learning process, making market resuls converge to rational expectations equilibrium.Chapter 4 analyzes the modes and effects of transparency operation in the developed countries and summarizes the characteristics of communication policy. Despite the different modes of communication, but the operation effects improving transparency are similar. The abilities of financial markets forcasting the future monetary policy decision-making and monetary authorities influencing asset pricing have been enhanced.Chapter 5 constructs the basic framework of central bank communication, including source of information, information contents, information channels, target groups and feedback mechanism. Different types of Monetray Policy Committee select information contents and communication modes according to various needs of social groups. Financial market is concerned about the wording of policy statement very much. Taylor rule formula and expected hypothesis are applied to analyze the operation mechanism of policy statement affecting market expectations.Chapter 6 discusses the problems of moderate monetary policy transparency. The auguments about whether or not central bank should disclose the monetary policy objective function, the threat to financial stability, the internal discussion among Monetray Policy Committee and future policy path have never stopped. It is very difficult for central bank to find the exact point of balance so that transparency can be achieved optimal. The optimal design of central bank communication is still in study.Chapter 7 focuses on the process of China's monetary policy transparency and the methods People's Bank of China (PBC) used to measure. The manner of monetary policy operation is gradually from impacting on the market by surprise to guiding and managing market expectation by comminication. There are two ways to measure China's monetary policy transparency, indicators and time sequence test. It comes to conclusion that the influence of PBC communication on shaping the public expectartions is limited. Based on the test results, this paper expanded the Keynesian beauty contest model to explain the reasons for poor performance. Taking into account lower PBC independence, the choice of policy tools are limited and inflation targeting has not been established. It is a dynamic evolutionary process for enhancing monetray policy transparency.Chapter 8 is the conclusion of this paper.There are very limited literatures about how to implement transparency and central bank communication in domestic research. And in other countries, the related studies pay more attentions on relationship of the communication and the public expectation in a given country. But in this paper, some inherent laws in monetary policy operation with improving transparency will be provided, and take it into account, there are some possible innovations such as:Firstly, on the basis of systemic studies on the mechanism of central bank communication monetary policy, it suggests that communication is different from traditional operation through policy action. It discusses many key elements influencing communication effects, including source, content, channel, target groups and feedback mechanism. And it abstracts the operation framework of improving monetary policy effects based on enhancing transparency.Secondly, it analyzes various research methods and selects China's data to test PBC communication effects. Beauty contest model also be expanded. Besides the precision of public information, market reaction factor is also considered. It suggests that both transparent and surprise operation is likely to continue to for some time in China, improving monetary policy is a dynamic evolutionary process.Thirdly, to use the successful practice in developed countries for reference and to combine China's actual economic development at this stage, it suggests the transparency manner of monetary policy operation in line with China's actual condition. The job of this paper will be beneficial to guide the practical operation of monetray policy in our country.