Research About Effects Of Financial Innovation On Monetary Policy Transmission Mechanism In China

In the environment of new-normal phrase of economy and new-frame of finance,the effectiveness of monetary policy depends is mainly determined by the effectiveness of monetary policy transmission mechanism.And financial innovation is that fundamental and endogenous factor that influences the monetary policy transmission mechanism,which is driven by the financial system's inside motivations.So,in order to deeply understand and to solve the difficulties facing to the monetary policy,this paper focuses on the effects of financial innovation on the monetary policy transmission mechanism.Monetary policy regulation process is "monetary policy-transmission mechanism-real economy",in which a set of monetary policy variables,which can be quantitative or price like policy tools,via a set of intermediate financial variables or transmission mechanism variables,and financially to reach to a set of real variables,which can be economy growth,price level,full employment and national balance.Monetary policy transmission mechanism is a system,which is composed by financial institutions,financial markets and other related variables in financial system,and the mechanism system reacts to the monetary policy,and then transfers such actions to the real economy,and in such sense,the financial system,which is independent of monetary authority is monetary policy transmission mechanism in itself.This paper argues that financial innovation is the process or result of process in which financial intermediaries and other financial institutions provide new forms of financial services,financial products and other financial business.Financial innovations leads to the changes of financial system which is also the monetary policy transmission,and affects the real economy at the end.From the above points of view,this paper introducing financial innovation into the process of monetary policy regulation and extends it to a new form,which is "monetary policy is exogenous factor,and financial innovation is endogenous factor-transmission mechanism-real economy ",and based on such approach of financial innovation,this paper makes research from theoretical and empirical aspects.This paper includes five parts,which are literature survey,current situation describe and analysis,theoretical research,empirical research and policy suggestions.literature survey is mainly about the international and our countries' research,and discussion about them,analyze the current monetary policy and transmission mechanism theory.Current situation describeand analysis is mainly about summarizing and analyzing the current financial innovations and their effects on the monetary policy.Theoretical analysis is about the mechanism how the financial innovation affect the transmission mechanism and the modeling about such mechanism,which includes three models and they are financial innovation benefit and risk model,banking off balance innovation model and interbank business innovation model.Empirical analysis is about using econometric methods to test the existence and significance of financial innovation on the monetary policy transmission mechanism.Policy suggestion includes two parts which are macro control and micro fundamental policies.Firstly,this paper describes and analyzes the current situation of financial innovation,and discusses the effect of financial innovation to the monetary policy transmission mechanism.The characteristics of financial innovation since China's opening up reform are the participant of financial innovation is increasing,the scope of financial innovation is being extended,the level of financial innovation needs to be improved,the trend of financial innovation is changing from government leading to market leading,the homogeneity of financial innovation is in strong degree,the heterogeneity of financial innovation requires to be improved,the driven of policy arbitrage of financial innovation is strong and the risk of financial innovation is accumulated.As a result of financial innovation,monetary policy has the following problems,which are the quantity of money,the velocity of money,the actor of financial innovation,the matching of benefit and risk is changing deeply.The monetary policy transmission mechanism has problems too,which are the new factors of influencing transmission mechanism is emerging,the structure of transmission mechanism is changing,the exit mechanism is not smoothing.Considering the heterogonous feature of financial innovation,this paper summarize the current main financial innovation among banking and nonbanking intermediaries,and discusses the effects of different financial innovation on the monetary policy transmission mechanism.On the whole,as a result of deep financial innovation,our country is changing from the banking as the main financial institutions to banking as the core institutions,and other related innovative intermediaries is increasing and becoming to play more important role.Secondly,this paper discusses the fundamental and endogenous effect of financial innovation on the monetary policy transmission mechanism,and puts forward the mechanism of how financial innovation can influence on the monetary policy transmission mechanism,which are scale effect,risk effect,structural effect,substitution effect,contagion effect and risk taking enlarge effect.Based on the above mechanism,this paper construct three models to analyze the effects.The first model is a frame analysis of financial innovation benefit and risk,the second model is banking off balance innovation model,and the third is interbank business innovation model,and from the three models,this paper concludes that the off balance sheet innovation has substitution effect on the inside balance sheet banking credit,and the conformed payment of return on the risky off balance investment twists the incentive in the market,and the shadow banking has effects on the interbank business' s scale and price.Thirdly,based on the financial innovation benefit and risk model,this paper makes empirical analysis of financial innovation on the transmission mechanism,which includes three VAR models to test the traditional mechanism of banking credit,asset price,interest rate and exchange rate,and further more,this paper put forward composite mechanism of transmission and tests it using SVAR.The main conclusions of macro level empirical are(1)the traditional mechanism exit in our country and the significance is high,but the four mechanisms have different features as to the benefit and risk effect.(2)banking credit mechanism is exit and has the most significance,and the benefit of banking credit innovation is strong and the risk effect is relatively low.(3)the asset pricing mechanism is exit and the significance of that is strong,the risk effect is strong than the benefit effect.(4)interest rate effect is exit,but the significance is low,and the price inflation effect is strong and longterm to the real economy,which means that the market mechanism of interest needs to be improved.(5)the exchange rate mechanism is exit,and the significance is stronger than that of interest rate mechanism.(6)the composite mechanism exit and the significance is stong and different dimensions of financial innovation have different degree of effect on the transmission.Fourthly,based on the financial innovation of banking micro approach,this paper tests the the heterogeneous financial innovation's effect on the monetary policy risk taking mechanism.And this paper finds that(1)no matter in what kind of monetary policy environment,the banking micro heterogeneous financial innovation has the significant effect on the enlarging the risk taking mechanism of monetary policy.(2)different financial innovation has different effects on the risking taking mechanism.(3)the same financialinnovation has different effect udder different monetary policy environment.(4)financial market business innovation and diverse business and diverse revenues driven innovation have strong enlargement effect to the risk taking mechanism.Such conclusion means that monetary authority should pay special attention to the enlargement effect of financial innovation on the risking taking mechanism,and monetary authority can take different regulation to the financial innovation with respect to different features,diversification should be monitored intensively,because it can significantly enlarge the risk taking of monetary policy transmission mechanism.Lastly,this paper put forward policy suggestions from both macro control and micro fundamental.As to the monetary authority,objective and relative approach should be taken to the financial innovation,and should encourage financial innovation while keeping a close watch to the risk and benefit trade-off,constructing macro and micro financial innovation indicators system,taking regulation according to the rule of nature is important than the form,enhance and improve monetary control systems,which includes monetary tools,rules,transmission mechanism.As to the banking and other financial intermediations,benefit and risk of financial innovation should be both paid attention,and the motivation of financial innovation should focusing on the demand of real economy.This paper has three innovative points,which are(1)the approach innovation,this paper takes a new approach to make research on the effecting factors of monetary policy transmission mechanism,which is the financial innovation approach.(2)theoretical innovation,this paper puts forward the mechanism of how financial innovation makes effect on the transmission mechanism,and constructs financial innovation benefit and risk model and other specific financial innovation models.(3)empirical innovation,this paper chooses different financial innovation dictators to test the exit and significance of effect,which includes the test for the four traditional transmission mechanism,the composite transmission mechanism,and the risking taking mechanism.