Study On The Transmission Mechanism And The Influencing Factors Of Effectiveness Of The Cost Channel Of China’s Monetary Policy

In many countries,there exist the "price puzzle" phenomenon that the change of interest rate leads to the change of price in the same direction.Traditional monetary economics emphasizes to analyze the transmission mechanism of monetary policy and its quantitative impact from the demand side,and regards it as a means of "aggregate demand management".However,this analysis framework can not explain the "price puzzle" very well.In order to explain this phenomenon,scholars began to analyze the transmission mechanism of cost channel of the monetary policy from the perspective of supply side.They believe that the change of interest rate would affect the financing cost of enterprises,then influence their investment and production behavior,and ultimately affect the price and the total output.The transmission mechanism of cost channel from the perspective of supply side increases the uncertainty of interest rate control.At present,China is in a critical period of economic transformation and upgrading,especially the measures such as the reform of interest rate liberalization and the reform of state-owned enterprise,are making structural changes in China’s economy.In this context,in order to improve the control effect of monetary policy and promote the healthy and sustainable development of the economy,we must clarify the following questions: 1.Does the transmission mechanism of the cost channel of monetary policy in China significantly exist? 2.Considering the factors of both demand-side and supplyside synthetically,what impact will monetary policy ultimately have on the economy? 3.How does China’s structural transformation affect the effectiveness of the cost channel of monetary policy?Based on the above analysis,combines the background of the reform of interest rate liberalization and the reform of state-owned enterprise,this paper study the existence,transmission mechanism and the influencing factors of effectiveness of the cost channel of China’s monetary policy.Firstly,on the basis of the existing research,this paper theoretically analyzed the mechanism of the cost channel of monetary policy from the macro and micro levels respectively.Then,by constructing a micro-enterprise pricing model including the cost channel,this paper made an empirical test on the existence of the cost channel of monetary policy in China,and further examined the discrepancy of different industries and different enterprises with different ownership systems affected by cost channels.Finally,this paper constructed a DSGE model including cost transmission channel,and incomplete transmission of interest rates,and a DSGE model including cost transmission channel,heterogeneity of enterprise and interest margin between deposit and loan,to study the transmission mechanism and influencing factors of the cost channels of monetary policy in China,under the background of the reform of the interest rate liberalization and the reform of stateowned enterprise.Through the empirical research,the main conclusions of this paper are as follows: Firstly,China does have the cost channel effect of monetary policy,and the impact of cost channel on enterprises in different industries is different.The industries that are greatly affected by cost channel are mainly concentrated in the upstream and middle reaches of the value chain,and the impact of cost channel on downstream enterprises is not significant.Secondly,the cost channel of China’s monetary policy exists significantly in the short term,and demand side effect will dominate in the medium and long term,that is,the change of interest rate will make prices change in the same direction in the short term,and make prices change in the reverse direction in the medium and long term.Thirdly,because of the differences in budget constraints and operational objectives of the state-owned enterprises,it intensified the rise of price level after the impact of interest rate hikes,and further strengthened the transmission mechanism of cost channels.Fourthly,under the background of the reform of interest rate liberalization and the reform of state-owned enterprise,some factors will affect the effectiveness of cost channel: price stickiness and the reduction of proportion of enterprises needing external financing will weaken the intensity of cost channel;the reduction of wage stickiness will strengthen the intensity of demand channel slightly,and greatly reduce the intensity of cost channel;incomplete transmission of interest rate will enhance the intensity of cost channel;reducing the proportion of state-owned enterprise in the economy and increasing the weight of profit target of state-owned enterprises will weaken the intensity of cost channel;the reduction of the interest rate spread between deposits and loans has no obvious effect on the intensity of cost channel and the control effect of interest rate;hardening the budget constraint of state-owned enterprises will greatly weaken the intensity of cost channel,which plays a decisive role on the control effect of monetary policy.The study of this paper has the following policy implications: First,the central bank should utilize monetary policy more cautiously,strengthen coordination among different tools in order to stabilize public expectations,weaken the uncertainty brought by the transmission mechanism of cost channel,thereby achieve the expected policy objectives.Secondly,in order to avoid the economic fluctuation caused by improper adjustment in the process of economic structural transformation,the central bank should establish a "interest rate fine-tuning" model characterized by forward-looking,small-scale and flexible adjustment,that is,to improve the accuracy and effectiveness of interest rate policy prospectively through small-scale fine-tuning of interest rate level according to the established macroeconomic objectives,thus not only ensure the shortterm economic stability,but also realize the long-term economic growth.Thirdly,we need to further promote the reform of property rights system of state-owned enterprises,break the monopoly position of state-owned enterprises and eliminate those enterprises with high cost and low efficiency,so as to enhance the efficiency of interest rate control,thereby ensure the smooth implementation of price-based monetary policy.