Research On The Correlation Mechanism Between Financial Stability,monetary Policy And Economic Growth

Since China entered the "new era",in the face of the wave of external trade protectionism and domestic debt default events,the maintenance of "financial stability" has become the top priority of the monetary authorities.At the present stage,China has entered the "deep water zone" of economic and financial structural reform.The work report of the 19 th national congress of the communist party of China clearly points out that the construction of the financial system should be improved by establishing a two-pillar framework of "monetary policy" and "macro-prudential",and the bottom line of "no systemic financial risks" should be kept.Based on the above background,this paper aims to study the risk sources of China's financial system and what monetary policies should be adopted to regulate and control financial stability so as to ultimately ensure the steady growth of the economy.The first part of this paper describes the research work on financial stability by institutions and scholars around the world,and analyzes the main characteristics of financial stability based on the description of the basic form of financial stability by the international monetary fund,the World Bank and the Central Bank of China.From the opposite point of view,this paper expounds the main causes of financial risks and summarizes them into the following theories: debt risk theory,financial instability hypothesis,financial cycle theory,panic contagion theory,monetary policy failure theory.A review of the 2008 financial crisis in the United States,from the financial system,macroeconomic fundamentals and the international financial crisis contagion three aspects of the summary of the risk factors leading to the financial crisis;In the19 th national congress,the Chinese government stressed the two-pillar model of "macro-prudential" and "monetary policy".In this regard,this chapter analyzed the monitoring focus of monetary authorities on financial stability based on the characteristics and causes of the modern international financial crisis.The second part is the empirical analysis of the measurement and stability of China's financial stability.At present,financial stability measurement methods mainly include financial stress test analysis,financial crisis warning model and comprehensive index analysis.Among them,the financial stress test analysis method is difficult to fully reflect the overall financial situation,the threshold value of the financial crisis warning model is difficult to grasp,and the composite index synthesis method is more flexible,can fully reflect the stability of the financial system,therefore,the use of composite index synthesis method to build financial stability index(FSI);This chapter is based on the IMF's FSAP framework and combined with the actual situation in our country to build the index system of financial stability,thesystem reflects the financial market conditions(FSCI),macro economic conditions(MECI)and the international capital flows(ICFI)three level indicators and 11 can reflect economic fundamentals,import and export,and financial status of the secondary indexes of;In this chapter,the quarterly data of various indicators from2003 to 2017 are selected,and the financial stability index of China is fitted with the principal component analysis method,and the contribution of each indicator to financial stability is analyzed respectively.The results show that China's financial risks mainly exist in financial market supervision and prudence,and the macro-economic situation will also impact on financial stability.In addition,China's financial system is more sensitive to changes in the external environment due to the high dependence on trade.The third part examines the influence mechanism of "quantitative" monetary policy and "price" monetary policy on financial stability.Monetary policy has long been the authorities as one of the important ways to regulate financial stability and economic growth,the basic money supply as the proxy variable "quantitative" monetary policy is to the interest rate as the proxy variable of "price" monetary policy has been the topic of the academic debate,this chapter,the paper discusses the characteristics of two kinds of monetary policy to do and compares the two kinds of the effects of monetary policy;In the empirical analysis,a three-dimensional tvp-var model was constructed,covering the three main variables of financial stability index,money supply and interest rate.The dynamic relationship between financial stability and "quantitative" monetary policy and "price" monetary policy in different stages was studied through equispaced pulse analysis and time-point impulse response analysis.The empirical results show that: first,the mechanism of action between monetary policy and financial stability has significant characteristics in stages,and the moderately loose monetary policy at the current stage can effectively improve financial stability;Secondly,the quantitative monetary policy has a significantly better regulatory effect than the price policy,and the policy authorities should focus on the quantitative policy in the regulatory process.Finally,the regulatory effect of monetary policy on financial stability is more of a long-term effect.Therefore,the monetary authority should focus on maintaining the long-term stability of the financial system,adopt a relatively stable monetary policy and maintain the continuity of monetary policy,so as to establish a good expectation for the public.The fourth part studies the relationship between China's financial stability and economic growth.The model introduced economic growth rate(GDPR)and financial stability index(FSI).Based on the quarterly data from 2003 to 2017,the model adopted markov region system transformation model to conduct an empirical study on the correlation between financial stability index and economic growth in China.Through linear and non-linear granger causality test,it can be concluded that there is a two-way non-linear granger causality between financial stability(FSI)and economic growth,and the two are mutually causal.According to the analysis of markov model,the relationship between financial stability and economic growth inChina presents a more significant regional characteristic with the "shifting" of economic growth rate and the level of financial stability.The impact of economic growth on financial stability is more significant than that of financial stability on economic growth.When the economic growth rate is too fast,the economic growth has a negative effect on financial stability,while the economic growth rate decreases,and the economic growth has a positive effect on financial stability.When the financial stability index is at a low level,financial stability is conducive to economic growth,while when the degree of financial stability is high,the relationship between the growth of the index and economic growth turns to be inversely correlated.The fifth part studies the interaction effects of financial stability,monetary policy and macroeconomic growth on the basis of the direct effects of the three variables.Firstly,it expounds the scholars' discussion on the neutral theory of money and the non-neutral theory of money.Secondly,the interaction mechanism among monetary policy,financial stability and economic growth is analyzed based on the wealth effect theory,liquidity preference theory,generalized liquidity trap theory and financial accelerator theory.In the empirical analysis,a simultaneous equation composed of financial stability,monetary policy and economic growth is established,and the three-stage least square method is used to estimate the correlation between financial stability,economic growth,"quantitative" and "price" monetary policies.On the whole,financial stability promotes economic growth,while economic growth inhibits financial stability.On the whole,moderately loose credit policies contribute to economic growth and financial system stability.The rise in interest rates has helped to stabilize the financial system but somewhat dampened economic growth.The sixth part studies the asymmetric effects of the feedback mechanism of China's monetary policy in different regions.Regions due to the vast area in our country,the development of the situation and there is a big difference,based on the heterogeneity characteristics of regional economic structure of China,it is divided into eastern,central and western regions,the monetary policy and financial stability and economic growth in different regions of relevance to do the quantitative analysis,study the problem of unbalanced regional development differentiation under the unified monetary policy framework adjustment.The contribution of "quantitative" and "price" monetary policies to economic growth is the eastern region,the central region and the western region.The influence coefficient of the two monetary policies on price stability is the highest in the western region,followed by the central region and the eastern region.