The Choice Of The Intermediate Target Of China's Monetary Policy

There were a lot of uncertainties in China's current monetary policy, which presented a threat to macroeconomic stability in China.This kind of threat came from the reason that China was facing with the problem in choosing what kind of economic variables was suitable as being the intermediate target of monetary policy. Based on China's intermediary target of money supply, we analyze the feasibility of the interest rates as intermediate target, and then analyze the alternative impacts of shocks imposing on these two kinds intermediary targets of monetary policy on the real economy respectively in terms of the interest-rate when regulated and unregulated.From the point of empirical analysis, the differenct impacts of two different policy shocks were arising from the money supply side:as the central bank's monetary supply influenced the choice of individual saving behavior mainly through household's consumption expenditure as well as alternative investments(this paper mainly refers to the material used for the accumulation of capital investment), and the decision was different depending on whether interest-rate was controled or not. According to our analysis, the shock of interest-rate had more asymmetric impact on the fluctuation of household's consumption expenditures than the money supply shocks when unregulated, and the results also supported the opinion that interest-rate was more suitable as being the intermediate target(because the more symmetric of the shock, the more similar to "white noise", making policy-makers unable to distinguish between policy-impact effect itself with other exogenous disturbances, which was obviously conflicted with traditional sense that unexpected policy changes is more effective.From the point of theory analysis, the differenct impacts of two different policy shocks were arising from the money demand side:Commercial Banks set rational deposit and loan interest-rates according to the quantities of deposits they own in the light of the maximization principle of profit, then they provided loans to enterprises with financing needs, and finally the enterprises decided how much production factors to input according to their abity in obtaining bank loans based on the loan interest-rate. Specifically, the steps above can be made concise as follows:"ie, deposits formation,interest seeting, corporate loans and production input". In our analysis, we choose the setting form of "from primary products to domestic final producf'in descrbing china's real economy,so the loan interest-rate would affect all factor inputs(including physical capital, labor, primary products, etc). Once the loan interest rate changed, it would influence all the factors'inputs simultaneously matching with their shares of enterprise's production scale, thus affecting the final domestic enterprise's outputs. Due to the reason that final domestic goods were also factors of primary production input, the output of primary products also decrease, further reduce eocnomy's total output. The interest rate changes on the real economy caused a"spiral" amplification mechanism, which was also consistent with the empirical results of the model. From the demand side of money, we found that the influence of interest-rate shocks compared with the money supply shocks were more direct and effective on the real economy, and the interest-rate target can also reduce other disturbances hindering the formation of physical capital than money supply target, making the channels in conducting monetary policy more lubricated and effective.Our research in this paper draws the conclusion that on background of interest rate marketization the respenses of sectors in China became better off when facing exogeneous shocks as the intermediate target of interest rate other than money supply is chosen. Moreover, no matter whether the interest rate is regulated, the intermediate target of interest rate other than money supply is also better. In addiition, this paper suggests that some matching facilities for interest rate marketization is necessary in order to bring the intermediate target of interest rate larger effects.Our research in this paper is helpful for people to more deeply understand the different effects of money-supply intermediary target and interest-rates intermediary target on the real economy and it also provides a reference to policy maker of which intermediary target is more suitable in monetary policy under the process of interest rate liberalization in China.This paper is organised as followes:in the1st chapter, the background and significance of this reserach is sketched, then in2ed chapter the status quo of China's monetary policy is reviewed, and in the3rd chapter as well as followed4th chapter the flaw of money supply intermediary target and the feasibility of interest-rate intermediary target which was on the background of interest-rate liberation were analyzed, finally in the5th chapter a complete contrasts between these two monetary targets were given and in the last chapter the conclusion was drawn.