Research On The Transition Of Chinese Monetary Policy Under Interest Rate Liberalization

As China economy reform enters into deep water area,economic development enters the new normal,financial innovation and liberalization speeds up,the wealth products expands quickly,the internet finance prospers,non-standard banking products and off-balance sheet products grow fast,the asset-backed securitization becomes popular,interest rate as well as the exchange rate becomes marketized,which changes the macro-economic environment and effects of traditional monetary policy.The efficiency of the quantity monetary policy becomes week,which hardens the macro-economic control,and which forces monetary policy transfers from quantity to price.Under this environment,it is important to do deep-research about why the quantity monetary policy becomes invalid,how the financial innovation and technology creation weaken effects of traditional macro-control,and what kind of monetary policy can avoid this situation,how policy rate is conducted to financial market,as well as how to reform the accompany system and mechanism,supervision methods and technology.This paper follows the transition of monetary policy,tries to find out the mechanism of the inter-banking business,internet finance,interest liberalization and asset-backed securitization influencing the quantity monetary policy,and based on the successful experience of the developed countries’ interest rate liberalization and transition of monetary policy,makes proposal to build up the interest rate corridor as the price-based monetary policy tool,and makes suggestions on the improvement of economic system,mechanism and the supervision.The idea of the study is as follows.Firstly,sorts out related monetary policy theory and literature,analyzes the different tools,transmission mechanism of quantity_based policy and price-based policy,pointing out the mainstream monetary policy analyzing frame---DSGE model.Secondly,reviews the monetary policy conduct history of China,reviews the interest rate marketization courses,points out the transition necessity of monetary policy from quantity-based to price-based,finds out that interest marketization can optimize the distribution of social fund resources,guides fund flows from financial market to real economy.Thirdly,analyzes the effect of different financial innovation,system innovation.(1)Based on the CC-LM model-based loan decision model,this paper inputs the inter-bank business into the monetary policy study frame,and finds out that the inter-bank business affects prominently the credit transmission of monetary policy,with obvious pro-cyclical effect,since the inter-bank business affect the intermediate target,the policy tool and the transmission mechanism,and with heterogeneity of equity nature.(2)Dirives how the asset-backed securitization increases the bank liquidity by putting asset off balance sheet,increases the credit creation power,with a multiplier effect,which weakens the transmission effect of the tight-monetary policy on the credit market and the credit structure.(3)Certificates of deposit widen the fund resources of banks,increases the credit creation capacity,and strengthens the marketization pricing ability.(4)Deposit insurance system works as the base-insurance mechanism,splits funds flow between different financial institution,which affects the sensitivity of financial institution to monetary policy.(5)Proves that the internet finance affects the monetary policy by affecting the monetary demand by cash-substitute,reduces the Keynes transaction demand and precautionary demand,as well as increase the money demand elasticity,expand money boundary,influence the credit-creation function,blurs the relationship between the base money and the social monetary aggregates,stretches the credit chain,affect the pricing,widen the financial service band,and finally the transmission of monetary policy.Fourthly,explores the construction and application of new monetary policy frame(price-based).(1)explains the market-decision system of deposit and credit,as well as the exchange rate.(2)introduces the interest rate corridor,as well as the mechanism,transmission,finds out that interest rate corridor can relieve liquidity shock,reduces liquidity-hoarding need,split the quantity and interest rate conduct,reduce the cost and frequency of open market operation.It explores the best upper limit and lower limit,the best width,as well as influence factor of interest rate corridor.(3)analyzes the experience of interest rate corridor in developed countries,builds GARCH model,and finds out that,interest rate corridor indeed can reduce interest rate volatility,and points out the way to build effective interest rate corridor.Fifthly,analyzes transmission of the interest rate,exchange rate under the price-based monetary policy frame,and the affects of different economic system.(1)Builds up a DSGE model,based on the family,enterprises,merchant bank,central bank,and the foreign countries,inputs the investment,interest rate,money demand,money supply,interest rate adjust,and the welfare target function of central bank into model,based on the MATLAB and dynare tools,tests the transmission effect of policy rate into the bond market,deposit market and credit market.(2)expands to impact of different economy system such as reserve requirement ratio,capital adequacy ratio.(3)analyzes the impact of foreign demand shock and exchange rate shock on the transmission effect of price-based monetary policy;(4)make comparison of the welfare effect of different monetary policy,and finds out that the mix monetary policy can steady the output and inflation volatility,resulting the minimum policy conduct welfare loss,and that the mix monetary policy is the best suit policy under the current Chinese condition.(5)analyzes the transmission mechanism of interest rate under the banking system and bond market,explores the market-pricing process of commercial bank,as well as the role of the interest rate curve,points out the deficiencies of current bond market.Finally,makes conclusion and related suggestions.(1)monetary policy transition is necessary,the interest rate corridor is important part of price-based monetary policy,and the different economy system will affect the transmission effect of price-tools.(2)it is necessary to further push the marketization pricing of commercial bank,improve the bond market structure,build up the base interest rate curve.(3)point out further research on the transition of monetary policy under the latter-times of interest rate marketization period.The innovation of this paper lies in:the first is the combination of the inter-bank business into the monetary policy frame,finding out that the inter-bank business faces more volatility with pro-cyclical effect,that funds flows from big banks to mid or small banks,and from the deposit institutions to non-deposit institutions,which blurs the multiplier effect between the base money and the social aggregate money,influencing the monetary policy transmission mechanism;the second is that the interest marketization can optimize the distribution of social fund resources,guide the fund flows from financial market to real economy,and the interest rate marketization is the prerequisite of monetary policy transition.The third is that financial innovation apparently affects the effect of monetary policy.The asset-backed securitization pushes up the market interest rate with effect of multiplier,changes the consumption and investment structure,and solves the industry hollowing and financial hoarding.The internet finance increases the money demand elasticity,influences the money demand and money supply,increases the supervision of money amount,and reduces the traditional monetary policy conduct.The forth is that based on the CMR model and Majun(2014)model,inputting the financial accelerator,risk-premium,price and wage rigidity into the enterprises decision process,and inputting the Basel Ⅲ capital adequacy,reserve requirement ratio,interbank borrowing and deposit,the central-bank-refinancing into the commercial bank decision-making process,and finding out that different economy system and institution affect the transition effect of the price-based monetary policy from financial market to the real economy.By contrasting different effect of different monetary policy,it finds out that the mix monetary policy which results in lowest social welfare loss and minimum volatility of output and inflation and proves to be the best-suit monetary policy under current Chinese environment.At last,this paper points out that it is necessary to improve more marketization operation of financial institutions,build up the base interest rate system,improve the yield curve,enrich the bond issuance term,innovate the interest rate derivatives,complete the collateral and further push on the liberalization of interest rate and exchange rate.