| Since the 1990s, there has been a large number of literature on monetary policy rule, and at the same time the central bank of many countries, to a large extent, make use of monetary policy rule in reality. These countries include some developed countries with complete market economy as well as those emerging market ones and developing ones. In terms of the monetary policy instrument, monetary policy rule consists of both money quantity rule and price rule. In detail, the policy instrument of quantity rule mainly includes money aggregate of different scopes in comparison with the price tools comprised by various interest rates as well as the exchange rate instrument under the flexible exchange rate system.China's monetary policy system has experienced an array of significant improvements since the reform and opening-up policy, playing an indispensable role in sustain the healthy development of the economy. On the one hand, China's central bank officially abolished its control to the quantities of credit loan, instead adopted the money supply as the sole intermediate goal by using the quantitative tools to adjust the economy, which implies that they implemented the money quantity rule. On the other hand, as process of the interest rate liberalization made progress little by little, the central bank gradually meantime introduce such price instrument as interest rate as the adjustment tools, which signifies the interest rate rule.Meanwhile, since 2005 the management floating exchange rate system began to run in China, taking the market supply and demand as the foundation as well as referring to a basket currency to carry on the adjustment, which enlarged the space of option, increased the independence of monetary policy. The paper comprehensively explores the effectiveness of the quantity rule and price rule in China respectively, based on the existing literature and China's economic development. The first chapter makes a systematic overview on the general theoretical development of monetary policy rule, and then makes a comprehensive overlook on both theoretical development and empirical research for both the quantity rule and price rule, respectively. In particular, McCallum has made great contribution to the development of quantity rules, and Taylor achieved original attainment in the field of interest rate rule, followed by making a systematic description of the interest rate from four different aspects on my own. Then, we make some commentary on the comparison of the relationship between the quantity rule and price rule.The second chapter specifies a augmented McCallum rule by introducing the forward-looking factors and stock market's yield, based on the existing literature and China's economic development. Then we use the continuing-update GMM method to make an estimation to find that the money quantity rule could describe the trend of China's monetary policy well, in particularly, the rule contributes to the economic adjustment policy of being against the wind, ensuring that the economy could grow at a relatively rapid pace in the conditions of stable price level. Furthermore, the growth rate of M2 could vary with the fluctuation of stock market in China by making notable response to the change of stock market, which signifies that the central bank should pay considerable attention to the change of asset price when instituting relevant monetary policies.Of course, because of the influence from such factors as the current financial institution, the circulating rate of China's money becomes somewhat volatile to some extent, even though the variation exhibit orderliness to a large extent, the method of adjusting money aggregate is still efficient. Besides, after making an analysis on the endogenesis of China's money, we find that the base money in China shows strongly endogenetic, and under this condition, by the credit loan policy, the central bank could effectively adjust the M1 and M2 to meet the need of economic development, and achieve the goal of monetary increase.Based on the above research result on the effectiveness of monetary quantitative rule in anti-inflation, the three chapter studies the relationship between the transparence degree and anti-inflation by using the asymmetric information theory. In the face of asymmetric information among the central bank and private sectors, the improvement of monetary policy transparency will not only decrease the inflation bias, it also diminishes the degree of fluctuation of inflation. Then, we use the sacrifice ratio to make empirical research on the relationship between the transparence degree and anti-inflation using China's data. The results show that in the first period of improving transparency during disinflation episodes the sacrifice ratio is significantly higher than that of transparency improved in the latter period, which implies that the low sacrifice ratio during the late 1990s in China was highly due to the improvement of monetary policy transparency. Of course, compare those countries with high degree of monetary policy transparency and low sacrifice ratio, China's sacrifice ratio is still higher, with the probability of further decrease in the future.In chapter four, we design an optimal interest rate rule with a role of money by theoretical analysis based on the new Keynesian model and a money demand function. This rule indicates that if either the weight of money growth rate stability or interest rate coefficient of the money demand function is bigger, the responding coefficient of money growth rate is increasing, monetary policy becomes more aggressive. Then, we use both linear regression method and threshold regression method to make an empirical analysis on the reaction function with China's data, respectively. The results show that all coefficients of inflation, product gap and money growth rate are bigger than zero, which implies that when economic development deviates from either equilibrium state or central bank's target, the interest rate rule could conduct that the central bank would take correct measures in order to make sure the stability of economic development. Moreover, we find that all coefficients in the regime of high money growth rate increase are bigger than those in the regime of low money growth rate increase.In the fifth chapter, by introducing an expected monetary supply growth variable, the paper specifies a forward-looking interest rate rule based on both the Taylor rule and China's actual conditions, and then utilizes quantile regression method to make empirical test on the forward-looking interest rate rule and finds that, the rule can ensure that China's economy can maintain the correct condition of policy-changing when the economic running deviates from equilibrium statement or the central bank's targets. Concretely, with the interest rate varies from the low position of conditional distribution to the high position of conditional distribution, the coefficient of expected money supply growth rate has the trend of increase by degrees, and the coefficient of excepted inflation has the trend of increase by degrees in the beginning and then decrease by degrees, and the coefficient of excepted product gap has the trend of decrease by degrees in the beginning and then increase by degrees.From the exchange rate pass-through effect perspective, the sixth chapter makes a research on that whether it is necessary to add the exchange rate factor into the interest rate rule in terms of some relative theories. We specify a log linear function of the effect of exchange rate pass-through to price, based on theoretical framework and the specific economic background of China, and then use the threshold method to explore the problem on the China's exchange rate pass-through effect. The results indicate that in the regime of low inflation rate, the effect of pass-through to price is positively small, which means that there would be very likely to low exchange rate pass-through effect. On the other hand, in the regime of high inflation rate, nevertheless, the pass-through effect is negatively small, even smaller than that under the low inflation rate state.These conclusions have more implications to the construction of interest rate rule in China. In the regime of low inflation rate, it is reasonable to include the response to the fluctuation of exchange rate in interest rate rule, while it would not be imperative for interest rate to adjust for the change of exchange rate under the low inflation rate circumstances. Moreover, faced with the conditions of low inflation rate, it is relatively easy for China to maintain the stability of domestic price level, not taking into account the influence of exchange rate variations on the price level, and offering helpful conditions for the construction of more flexible exchange rate system. Further, this would built up the foundations of inflation targeting, which is very prevalent in many developed countries, and even some emerging market countries. One of the prerequisites, however, is that the money authority must have the creditability of keeping a low inflation rate environment.The sth chapter makes a test for nonlinearity of a VAR model with an open economy, find that there is strong evidence that supports the nonlinearity of China's monetary policy quantitative rule and price rule, rejecting the linear VAR model to support the LSTVAR model. We use generalized impulse analysis and find that under the low growth regime, both the positive and negative shocks of interest rate have obvious asymmetric effects on price, with the positive effect on price positive shock remarkable. The positive and negative shocks of money to output have apparent asymmetric effect in the short run, but the long-term asymmetric effect is very slight. Furthermore, the asymmetry effect on the price from money shock is also not significant. Under the high growth regime, both positive and negative shocks from money and interest rate have obvious asymmetric effects on price. In details, the positive effect is a little stronger and more lasting than the negative effect. In addition, both the shocks of interest rate to output is considerably obvious, even the positive shock has larger output effect. As for the positive shocks, the product effect of shocks of money has clear asymmetry within different economic states, with the bigger output effect under the high growth regime. The price effect of shocks of interest rate has noticeable asymmetry within different economic states, with the bigger price effect under the low growth regime. Regarding negative shocks, the product effect from both the money and interest rate shocks does not have asymmetry in the long run. In terms of price effect, both the shocks of money and interest rate have symmetric influence.In brief, the money quantitative rule has the indispensable role in adjusting the price level. It is necessary to take monetary tools whenever the price level deviate the desirable range. It is meaningful to note that, however, the positive money shock's effect on price is bigger, that is the asymmetric effect. By contrast, the interest rate rule is not effective immensely in terms of both product effect and price effect, which may be attributed to the fact that the interest rate is not decided completely by the market as well as the efficient transmission system.Of course, any form of monetary policy rules just is a kind of concise description and approximation, not describing the complicated real world. In reality, the factors which central banks not only need to consider to regulate the economy is not only output, inflation rate and money supply involved in the various monetary policy rules, also need to take into account all the available information in terms of the local economic conditions. Furthermore, no one kind of monetary policy rule could not be used to every country, that is to say, there is no an optimal monetary policy that is unchangeable. The optimal monetary policy, however, need to take timely adjustment for new institutions or circumstance. As a transitional developing country, China has built basic market-oriented economy system, which means that market has played an increasingly important role in regulating the economy. In particularly, as the construction of market-based price of both the interest rate and exchange rate has been improving, the conditions for using price tool to adjust the economy have been improving. Under the current conditions of using the quantity rule to a large degree, China's central bank would gradually divert into interest rate rule as the main rule in the future.
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