Research On China’s Monetary Policy Uncertainty And Its Economic Effects

At present,China is still in the process of converting old and new kinetic energy and adjusting industrial structure under the new economic normal.The contradictions and conflicts in the domestic economic structure are fierce,and it is facing the complex and changeable international situation.As China’s main means of macro-control,its importance has continued to increase,and significant results have been achieved in macro-control.The practice of guiding the behavior of market players to achieve policy goals through monetary policy regulation is of great benefit to alleviating the economic difficulties China faces.The frequent adjustment of monetary policy inevitably lead to uncertainty,which changes the economic environment,interferes with the decision-making of microeconomic entities,distorts policy effects,and makes the task of monetary policy regulation more arduous.Although some studies provide ideas for reducing monetary policy uncertainty(MPU),the fact that MPU exists in the short term cannot be changed.Therefore,exploring how to reduce the adverse effects of this uncertainty is the focus of current research.The discussion of this issue requires a full understanding of MPU and its impact mechanism.In view of this,this paper explores the specific mechanism by which MPU affects the decision-making of microeconomic entities from the perspectives of expectation management,capital cost sensitivity of corporate investment,and corporate borrowing term structure in the context of China,and then analyzes the impact of this uncertainty.It is hoped that this paper can provide theoretical support and empirical evidence for reducing the adverse effects of MPU and improving the effectiveness of monetary policy and the effect of policy regulation.Considering the current situation facing China,it is necessary and urgent to answer three questions: Will MPU weaken the regulatory effectiveness of monetary policy itself? Through what channels does MPU weaken the effectiveness of monetary policy control? Faced with the many adverse effects of MPU,is there a way to turn crisis into opportunity or turn crisis into safety? In order to answer these questions,the research on MPU and its economic effects is carried out from the following three aspects,which is also the main research purpose of this paper: to explore whether MPU damages the expected management effect of monetary policy and the corresponding impact ways;to explore whether MPU interferes with the transmission channel of monetary policy interest rate,and the corresponding influence channels;to explore whether there are means to restrict its adverse effects in the presence of MPU.In order to achieve the above research purposes,the content and structure of this study are arranged as follows: Chapter 1,introduction.Combined with the current research background,this paper introduces the research theme,then puts forward research questions,clarifies its theoretical and practical significance,and expounds the innovative points and structural arrangements of the research.Chapter 2,research review.Combing and summarizing relevant literatures at home and abroad from three aspects: the measurement,influence,influence and factors of MPU,and then make comments,analyze possible deficiencies,and put forward the entry point of this paper.Chapter 3,theoretical analysis and research hypothesis.Since the research explores how monetary policy uncertainty affects the decision-making of economic subjects from the perspectives of expected management,capital cost sensitivity of enterprise investment,and maturity structure of enterprise debt,the specific influencing mechanism is theoretically analyzed and research hypotheses are proposed from these three perspectives in three parts.It provides theoretical basis and influence mechanism analysis for chapter 4,5 and 6.Chapter 4explores whether MPU impairs expected management effectiveness.Guiding public inflation expectations to reduce expectations distortion is an important manifestation of the effectiveness of expectation management.Given the importance of central bank communication in expectations management,this paper uses it to reflect the management of monetary policy expectations,thus transforming the research question into exploring whether MPU will lead to distortions in inflation expectations,and whether the effectiveness of central bank communication in mitigating distortions in public inflation expectations is affected by MPU.This research studies the influence of MPU on the distortion of public inflation expectation and the influencing mechanism under the framework of autoregressive distributed lag model.Finally,the main variables are replaced to test the robustness of the conclusion.Chapter5 explores the impact of MPU on the capital cost sensitivity of corporate investment,establishes a theoretical model to analyze the impact mechanism,and uses a sample of China’s A-share non-financial listed companies from 2003 to 2019 to verify the conclusion of the theoretical model.This influence mechanism is further verified from the four perspectives of enterprise growth,enterprise life cycle,industry growth and financing constraints.Finally,the robustness of the research conclusions is tested from the perspectives of precautionary motivation under uncertainty,investment irreversibility and so on.Given that the sensitivity of corporate investment to capital costs is an important condition and microscopic basis for the effectiveness of price-based monetary policy tools,which is helpful to identify whether the monetary policy interest rate transmission channel is open or not,this research provides empirical evidence at the micro level that MPU interferes with the transmission channel of interest rate and affects the effectiveness of monetary policy and its influencing mechanism.Chapter 6 explores the means that can motivate companies to improve governance and improve performance under the unfavorable macroeconomic environment created by MPU.From the perspective of corporate debt term structure,it reveals the specific mechanism of MPU transmission to the microeconomy.This part systematically discusses the impact of debt term structure on corporate business decision-making and corporate management under the influence of MPU from two aspects: liquidity risk effect and governance effect.These effects are further examined from the perspectives of corporate heterogeneity and the asymmetric effect of MPU.Finally,the robustness of the research conclusion is tested from the perspectives of corporate cash holding,corporate risk taking,bank credit allocation optimization under uncertainty,and so on.Chapter7,conclusions and implications.This chapter summarizes the main research work of the full text,systematically expounds the research findings,puts forward policy suggestions,and finally briefly describes the research shortcomings and prospects of this paper.This paper adopts the method of combining theoretical analysis and empirical test,and the method combining systematic analysis and comparative analysis.The conclusions drawn include the following three aspects.First,research findings on how MPU affects expected management effects.China’s public inflation expectations are both backward-looking and adaptive,which provides an explanation for the existence of distortions in China’s public inflation expectations from the perspective of expectation formation.Achieving the goal of "stabilizing expectations" depends on a certain economic environment and effective expectations guidance.This paper finds that MPU not only creates an unfavorable macroeconomic environment,but also damages the effect of expectation management,and thus has become an important obstacle to achieving the goal of "stabilizing expectations".On the one hand,the completeness of information and public psychological factors play an important role in the formation of expectations,and the increase in MPU means that the public faces more uncertain factors,which will directly interfere with expectations from these two aspects.On the other hand,although the central bank’s communication helps guide the public’s inflation expectations,the existence of MPU reduces its expected guiding effect,making the public’s inflation expectations more distorted.Second,research findings on how MPU affects the capital cost sensitivity of corporate investment.High MPU not only reduces corporate investment,but also has a dampening effect on the capital cost sensitivity of investment.Given that capital cost is an important economic factor affecting corporate investment,the sensitivity of investment to capital cost is related to investment efficiency,and the sensitivity of corporate investment to capital cost is an important condition and micro-foundation for the effectiveness of price-based monetary policy tools,which can identify whether interest rate transmission channel is open or not,this finding shows that MPU not only damages the efficiency of corporate investment,but also interferes with the transmission channel of interest rates and reduces the effectiveness of monetary policy.The internal mechanism of this inhibitory effect is that MPU reduces companies’ expectations of their future operating performance,and the incentives for companies to optimize resource allocation to improve future profitability weaken,leading to a decrease in the enthusiasm of enterprises to adjust their investment strategies according to the changes of economic factors,which ultimately show a decrease in the sensitivity of enterprise investment to the cost of capital.The results of the mechanism test show that corporate expectations play an important role in corporate investment decisions in different economic environments,and that the inhibitory effect of MPU is heterogeneous among companies.Third,under the influence of MPU,the research findings on how debt maturity structure affects corporate performance.Under the height of MPU,the liquidity risk effect and governance effect of the corporate debt maturity structure have been strengthened.On the one hand,shortening debt maturity will force enterprises to face greater liquidity risk,which is reflected in the reduction of new loans and new investment of enterprises.On the other hand,it will improve corporate governance to a greater extent,which is reflected in the reduction of over investment and agency cost.Since the liquidity risk effect and the governance effect jointly affect the business performance of enterprises,and their effects are opposite,the results of the improvement of enterprise performance show that under the influence of MPU,the governance effect of shortening the debt maturity is dominant.Therefore,under the influence of MPU,adjusting the debt maturity structure can reduce the negative impact of this uncertainty,and encourage companies to improve governance and improve corporate performance.These innovations of this paper are mainly reflected in the research design and research findings,including the following four aspects.First,it provides a new measurement method for MPU.Since policy uncertainty cannot be directly observed,various proxy indicators are usually constructed in researches,and the index compiled based on the content of newspapers is widely used in current research.Considering the mutual influence of newspapers and public expectations,if the uncertainty indicators compiled based on newspapers are used to study the impact of policy uncertainty on the expected management,it may cause endogeneity problems.In view of this,based on the research of Fernández-Villaverde et al.(2015)and Jurado et al.(2015),this paper proposes a new MPU measurement method that does not depend on newspapers,which enriches the existing measurement methods and expands the scope of related research.Scope.Second,it innovatively studies the effect of MPU undermining the guiding effect of the central bank’s communication on public inflation expectations and causing public inflation expectations to distort,providing empirical evidence for this uncertainty affecting the expected management effect of monetary policy and the impact mechanism.The research shows that MPU can indirectly participate in the formation of inflation expectations by affecting the expected management effect,which provides useful thinking for the effective management of public inflation expectations.Among them,the research on the distortion of inflation expectations is an important extension of the existing research.Unlike the rise or fall of inflation expectations,which is neutral,the increase in the degree of distortion of expectations means that the disordered level of public inflation expectations has expanded,which is an inflation expectation.It is an important manifestation of instability,so it is of practical significance to study the distortion of inflation expectations to achieve the goal of "stabilizing expectations".These findings not only provide new explanations for the poor communication effect of the central bank in special periods,but also provide explanations for the differential effects of different types of policy uncertainty on inflation expectations found in the current research.Third,by innovatively studying the impact of MPU on the capital cost sensitivity of corporate investment,this paper provides micro-level experience for MPU to interfere with interest rate transmission channels,reduce the effectiveness of monetary policy,and their impact mechanism.This research not only provides a new interpretation of the "mystery of the decline in China’s industrial investment rate" under the easing policy and stimulus measures.Moreover,considering that capital cost is an important economic factor affecting enterprise investment,the sensitivity of investment to capital cost is related to investment efficiency.Therefore,these finds provide empirical evidence that MPU damages enterprise investment efficiency from the perspective of capital cost.In addition,the research results show that the capital cost sensitivity of investment is state-dependent,easily affected by the macroeconomic environment,and will be suppressed under the effect of MPU,thus enriching the research on the influencing factors of investment sensitivity.Fourth,In order to provide suggestions for seeking countermeasures to turn crisis into opportunity and turn crisis into safety in the unfavorable macroeconomic environment created by this uncertainty,this paper innovatively studies the impact of the debt maturity structure on corporate performance under the influence of MPU.This paper explores the mechanism by which MPU affects corporate decision-making and business performance from the new perspective of debt maturity structure,which deepens the research on micro-individual behavior under the influence of MPU.It not only helps to understand the specific mechanism of the transmission of this uncertainty to the micro-economy,but also provides new ideas for motivating companies to improve governance and improve corporate performance under the circumstance of high MPU.The research takes China,a transitional economy as the background,to provide new evidence for the liquidity risk effect and corporate governance effect of debt maturity structure under the influence of MPU,and by unifying these two effects into an analytical framework that affects firm performance,it shows that the governance effect plays a leading role.These findings provide new inspiration for improving the management of aggregate demand and improving the effect of monetary policy regulation under the new normal of the economy.In addition,this research provides a new explanation for the "debt maturity structure puzzle" phenomenon in which corporate debt maturity structure in transition economies is biased towards shorttermization from the perspective of MPU.