Research Of Dynamic Effect About Monetary Policy On China's Systemic Financial Risk

Recently the priority target of each central bank is to maintain the financial stabilization.Systemic financial risk is the key element that could affect the financial stabilizing,and the authority realizes that defensing the risk plays an important role in overcoming the drastic fluctuation of the economy and avoiding financial crisis.The monetary policy becomes the most frequently used tool for central banks,especially the global financial crisis triggered by the subprime crisis highlighted the effects.Developed economies such as the U.S.,European Union and Japan,applied the quantitative easing monetary policy(QE)differentially that keeping the stability of economic and financial system.In the period of reforming and opening for forty-years of China,the real economy keep growing and the financial system developing fast,so that they are more intimated than before.Under the background of exchange rate system and market-oriented interest rate reforming,the relationship between China and other major economies were highlighted.In order to relieve the pressure of the crisis,People's Bank of China applied the monetary policy as well.China's 19 th session of National Congress Report emphasized that the authority need to improving and completing the dual-pillar regulatory framework of monetary and macro-prudential policy,deepening the market-oriented interest rate process and exchange rate reforming,improving the financial regulatory system,and holding the bottom line of do not occurrs the systemic financial risk.Obviously,preventing the risk,knowing the monetary policy's effect,and studying the dynamic influential mechanism of monetary policy on the risk are the most important issues for the authority to solve.Above all,this article puts the monetary policy and systemic financial risk under the same framework,from the view of analyze the dynamic influence between monetary policy and China's systemic financial risk,hoping to provide useful theoretical analysis criteria and empirical basis for the authority and regulators to supervise the financial system and prevent the risk.This paper mainly studies the dynamic influencial mechanism from the following aspects:Firstly,this paper compares the related theories and researches about systemic financial risk,doing the correlation analysis between monetary policy and financial stability.The author elaborates the forming mechanism,contagion mechanism,and the influencial factors of systemic financial risk,and clarifies the concept and scope of the risk studied in this paper for well known the feature of the risk and the root of occurs financial crisis,as the basic work for later theoretical analysis and empirical research.The author finds that monetary policy could affect the risk,but the extent of the impact isn't clear.After summarizing the related papers,the author found that most of them focused on the banking system,from the view of capital adequacy ratio,liquidity and risk taking behavior to analyze the response to monetary policy.However,in modern financial system the bank can't fully explain the correlation of them already.Thus,this paper assumes whole financial system of China as the research object being the foundation for measuring the systemic financial risk and analyzing the influencial mechanism between monetary policy and the risk.Secondly,upon the theoretical foundation,the author starts the basic work of the empirical research to build the comprehensive index for measuring China's systemic financial risk.According to the reality of China's financial system,the author analyzing its features and developing process,and also concludes the empirical method of measuring the risk.Besides,according the domestic and foreign papers,the author constructs the index pool,and uses the method of Principal Component Analysis,which is the first step of the empirical studies.After examined and analyzed the index,the results shown that it could measure the systemic financial risk of China perfectly.In the aspect of empirical research,this paper starts to analyze the dynamic internal impact of quantitative-type and price-type monetary policy on systemic financial risk of China.This paper uses the model of SV-TVP-VAR with stochastic volatility,and treats the quantitative-type and price-type monetary policy as variables to test the shocking effect,and analyze the dynamic influencial mechanism between them.The results shown that the risk of China affected by the monetary policy obviously,presented the feature of non-consistency,and the responding speed were different.It means these two kinds of monetary policy tools should be used to reduce the possibility of occurrs financial crisis in combination.After all,the relationship between financial stability and monetary policy is complicated,there exists interlink between them,but they are also need to be operate independently.It requires the authority estimate the economy from both monetary policy stabilization and financial stabilization,in order to make a better decision.In further research,in order to make up the deficiency and comprehensiveness of the research,the author does the study from the exteral influence of developed economies' monetary policy on the risk of China,which is concert with the analysis of internal influence.Previous studies showed that the monetary policy of developed economies has spillover effects,and its overflow channels usually are exchange rate and interest rate.Hence,the author select the monetary policy of the U.S.,European Union and Japan as the variables,utilizing the time impulse response function and the equal-interval impulse response function of SV-TVP-VAR model to examine the influential mechanism and dynamic features.The conclusions as following:(1)from the results of the U.S.,the relation between interest rate and the risk of China shows obvious dynamic features.The Fed rate rising brought negative shock to RMB real effective exchange rate,in short-term the stimulating effect is significant,but in the medium and long-term it close to zero.And the impact of exchange rate on China's systemic financial risk has no structural change.(2)from the results of the European Union,its QE policy has significant influence on the risk,but the long-term effect is limited,which cannot cause negative effects to the Sino-European trade.In fact,the long-term recovery effect of its QE policy could benefit the development of Sino-European trade.(3)from the view of Japan,its adjustment of interest rate strongly affect China's systemic financial risk,because the long-term low rate level would increase the risk,and the fluctuation of Japanese exchange rate could affect the risk of China with short-term effect.The impact of Japan's continued QE policy on China's macro economy will not only squeeze the effectiveness of monetary policy,but also increase the risk.Above all,the author suggests that China should keep its precaution against with other countries' monetary policy,especially developed countries',and strengthen the prudential supervision of international short-term capital flows.At the time of promoting financial market reforming,China should expand the financial cooperation with other countries.Based on the previous empirical research,the author studies and analyzes the linkage effect between monetary policy and the risk.In former research,the time-varying characteristics of China's systemic financial risk were tested by quantitative-type and price-type monetary policy,but the correlation analysis of the connected effect was lacking.In order to verify the conclusion,the author introduces the MS-VAR model and gets the following conclusion: the quantitative-type and price-type monetary policy are important in controlling the risk,but the authority need to make a choice between financial stabilization and monetary policy effectiveness.In the regime of high and low risk,the effect of monetary policy is remarkable,but the effect in the middle risk is weaker.It is shown that during the time of financial fluctuation,no matter using which kinds of monetary tool,the effect is better,and the quantitative-type has stronger effect than the price-type monetary policy.At last,above the empirical analysis,the author gives the advice for regulating China's systemic financial risk and formulating the monetary policy rules.With China's booming,the increasing complexity and the correlation of financial system,the authority and regulators should pay attention to monetary policy's effect on the risk,but also need to prevent the spillover effects of developed economies' monetary policy on China's financial stability.The authority need to taking the more prudential monetary policy in case of the unstabilization of financial market caused by the systemic financial risk,and maximizing the monetary policy function under different conditions,in order to achieve the goals of maintaining the financial order and price stabilization.