A Study Of The Mechanism Of China's Deflation And Effectiveness Of Monetary Policy

Deflation has appeared in many countries in the world since the 1990 s and world's economy has suffered huge losses. To understand and deal with deflation becomes a new task. Deflation has been paid close attentain to by academic circles and govern ment departments around the globe.On the basis of investigating the related literature of deflation at home and abroad,the auther of this paper puts emphasis on studying China's deflation,including its cause of formation,mechanism of the formation and effectiveness of monetary policy during deflation by qualitative and quantitative analyses,positive and normative analyses,theoretical analysis and case confirmation;then points out the orientation of China's monetary policy by raising the efficiency of monetary policy in the future and avoiding deflation.The main conclusions in the paper are as follows:(1) Deflation is a monetary phenomenon. It is the steady come-down of general price indices. The basis index of judging deflation is whether money value rises.(2) Deflation has come out in China,but its degree is slight and it is an economic recession following economic growth.(3) China's deflation is a kind of "Compound deflation". It is the result of mutual influence that many factors influence and strengthen each other,and that reform cycles and business cycles at home and abroad overlap each other.(4) In China,because imperfect compitition market and price rigidity,monetary policy affects output in short period.(5) China's economy does not fall into the "liquidity trap'',monetary policy is still efficierity during deflation;the fundamental factor which led to the inefficiency of monetary policy is that transmission mechanism is clogged.(6) The orientation of China's policy of raising the efficiency of monetary policy and removing deflation is:(1) To reconstruct transmission channel of monetary policy;(2) To continue in carrying out positive monetary policy;(3) To well co-ordinate financial policy and monetary policy;(4) To carrv forward micro-mechanism reform safely.