Research On The Effect Of Monetary Policy Under New Normal

In the New Normal,the domestic and international environments of monetary policy operation have changed significantly recently.Domestically,it had highlighted that the macro economy faced the multi unbalance among industrial structure,rural and urban structure and income structure,and the accompanied financial innovation and interest rate liberalization.Internationally,on the one hand,countries interconnected more tightly with the international economy integration;on the other hand,however,since the financial crisis,monetary policies among countries started to differentiate.The change of domestic and overseas monetary policy's environment weakened the effect of traditional monetary policy,whose characteristic was targeting at the total amount.Aiming at the change of monetary policy operation environment under the New Normal Economy,the central bank's operation mode has changed significantly.In the New Normal Economy,based on the traditional monetary policy instruments,such as open market operation,deposit reservation,and central bank loans,the central bank launched innovatively the targeted regulation monetary policy instruments and structural monetary policy instruments,such as targeted RRR cuts,targeted interest rate cuts,central bank refinancing,SLF and etc.Thus the new situation appeared that the traditional monetary policy instruments,targeted monetary policy instruments and structural monetary policy instruments were combined to regulate.Plenty of monetary policy instruments operations combined and the different instruments interacted with each other,so the complicated potential power was formed,to drive the policy target variables.The policy maker and the participants could only observe the change of each monetary policy instrument,instead of the potential driving force combined by monetary policy instruments.Therefore,it was hard to evaluate effects of combined instruments objectively and also to judge the transmission effects of these instruments accurately.Furthermore,the economy globalization and the polarization of international monetary policies led to the higher uncertainty of the monetary policy instruments,which brought the new challenge for our monetary policy operation under the New Normal Economy.Thus,the urgent problem to be solved was to reveal the effect ofmonetary policy under the New Normal Economy.Aiming at the change of monetary policy operation environment and the transition of monetary policy,in this paper FAVAR model and GVAR model were extended,and then the nonlinear money combination FAVAR model,GVAR model and panel data money combination FAVAR model,containing endogenous construction changes,were constructed,in order to research the monetary policy effects under the New Normal Economy from the macro and micro economy level.Concerning the macro economy level,in this paper,nonlinear money combination FAVAR model containing constructive changes were used to research the combined effects and idiosyncratic effects of our monetary policy under the New Normal Economy.In the model,the nonlinear transition function was used to describe the asymmetric effects led by monetary policy instruments in different economic cycle(different inflation level);Also,the model used the change of endogenous structure to depict the structure change of monetary policy contagion effects led by economic structure transmission in New Normal Economy,and used the monetary policy instruments combination factors to replace the interest rate in Ellis et al.(2014)model,so that the potential drive formed by traditional monetary policy instruments,targeted regulation instruments and structural policy instruments was described.The results showed that,as for monetary policy effects,the combination effects of price instruments were larger than those of quantitative instruments.As for the importance for realizing monetary policy's target,price instruments contributed more to outputs and the urban-rural coordinated development,meanwhile,quantitative instruments contributed more to inflation and upgrading industrial structure.Also,the results proved that traditional monetary policy instruments,targeted regulation policy instruments and structural policy instruments had different idiosyncratic effect to outputs,inflation,upgrading industrial structure and urban-rural coordinated development.Secondly,aiming at the realistic characteristics for the rapid economic globalization and international monetary policy differentiation in New Normal Economy GVAR model was constructed to research the monetary policy effects in the condition of open economy.In this model,the trade matrices among countries formed the foreign variables for different countries,so that the economic relation levels among countries were depicted.The short-term interest rate and generalized money supplement represent the monetary policy instruments,so the monetary policy effects were depicted in the condition of open economy.The empirical results showed,domestic easy monetary policy led to the increasing outputs,increasing inflation and the decreasing effective exchange rate.The domestic tight monetary policy resulted in the decreasing outputs,decreasing inflation and increasing effective exchange rate.For the spillover effects,the domestic monetary policy had spillover effects to the macro economy of other countries.The tight monetary policy had positive spillover effects to outputs of the South Korea,the EU,the U.S and New Zealand.,whereas it had negative spillover effects to outputs of the Japan,but had uncertainty spillover effects to Australia.Chinese easy monetary policy had negative spillover effects to outputs of the South Korea,Japan and the New Zealand,had postive spillover effects to outputs of Australia and the U.S.,and meanwhile had uncertainty to outputs of the EU.Furthermore,The monetary policies of main trade counterparties had spillover effects for our macro economy.The tight monetary policy of Japan and the EU and the easy monetary policy of South Korea?Japan and Australia had significant spillover effects to Chinese outputs.As for Chinese inflation,tight monetary policies of Japan and the EU,and the easy monetary policies of South Korea?Japan and the EU had significant effects to Chinese inflation.For Chinese effective exchange rates,the tight monetary policy in Japan and Australia,and the easy monetary policy of the EU and the South Korea had significant spillover effects to Chinese effective exchange rate.Concerning the micro economy level,in this article,the panel data money combination FAVAR model was constructed to reveal the monetary policy instruments' targeted regulation effects to characteristic enterprises,aiming at the characteristics of monetary policy combination operation and targeted operation in New Normal Economy.The results showed that these monetary policy instruments had significant differences to combination effects and idiosyncratic effects of different characteristic enterprises,so that central bank monetary policy had targeted regulation effects to characteristic enterprises.Specifically,one to three year commercial bank loan benchmark interest rate ? interbank lending rate and M2 had better regulation effects to agricultural enterprises.Interbank lending rate and M2 had more significantly regulation effects to information technology enterprises.Structural monetary policy instrument PSL and interbank lending rate had more significantly regulation effects to private enterprises and small enterprises.Rediscount interest rate and structural monetary policy instrument PSL had better regulation effects to real estate enterprises.Deposit reserve ratio of small and medium size financial institution had better regulation effects to manufacturing enterprises.M0 and Structural monetary policy instrument MLF had more significantly regulation effects to technological enterprises.Moreover,the panel data currency combination FAVAR model was used to research the operation effects of monetary policy and fiscal policy to enterprise debt.The results showed that local fiscal expenditure and central fiscal expenditure had better idiosyncratic regulation effects to debt of mining enterprises.Quantitative monetary policy instrument M1 had significantly better regulation effects to electricity enterprises.Price monetary policy instrument one year deposit benchmark interest rate and structural monetary policy instrument SLF had better idiosyncratic regulation effects to debt of transportation enterprises.Price monetary policy instrument,the interbank lending rate had significant regulation effects to state-owned enterprises.Price monetary policy instruments,one to three year benchmark loan interest rates,central fiscal expenditure had better regulation effects to debts of enterprises with high-level liability.Structural monetary policy instruments MLF and price monetary policy instruments,the central bank's rediscount interest rate to commercial banks and the local fiscal expenditure had better regulation effects to debts of large enterprises.Based on the results above,the monetary policy operation suggestions in New Normal Economy were raised from macro and micro economy level.From the macro economy level,when the economic growth and inflation are out of reasonable zone,the central bank should regulate the economic growth and inflation according to the combination effects and idiosyncratic effects of monetary policy instruments in the New Normal Economy,especially strengthening the operation of monetary policy instruments that have significant idiosyncratic effects to economic growth and inflation.When the economic growth and inflation are within the reasonable zone,central bank should choose those pointed monetary policy instruments to regulate,in line with the combination effects and idiosyncratic effects to industrial structure and urban-rural economic structure.At the same time,when making the domestic monetary policy,the central bank should consider the coordination and cooperation with our main trade counterparties.From the micro economy level,the combination regulation effects and idiosyncratic regulation effects of variety of monetary policies in New Normal Economy have significant difference between enterprises with different characteristics.So it is proved that monetary policy instruments have targeted regulation effects to enterprises with specific characteristics.Therefore,in order to realize targeted regulation goals in New Normal Economy,central bank should choose operations to monetary policy instruments,based on monetary policy targeted regulation effects to enterprises with specific characteristics.Furthermore,central bank should pay attention to the combination of monetary policy and fiscal policy.