Transmission Mechanism Of Monetary Policy In The Open Economy System

The monetary policy transmission mechanism is the way by which the monetary policy affecting the total demand, it decides the efficiency of monetary policy. In the open economy system, the monetary policy adjustment effects decrease, and the monetary policy transmission mechanism has also changed.The paper focuses on the features of the open economy system and the monetary policy transmission mechanism. In open economy system, the interest rate channel has been blocked somehow because the interest rate stickiness. Interest rate is the price of capital, but it's stickiness makes it not flexible according to the capital supply and demand, then the efficiency of interest rate channel decreases. In open economy system, the effect of capital market channel increases. The capital market makes great effect on the monetary policy transmission. It makes the importance of policy transmission mechanism change. The principle parts of transmission have been enlarged.According to the general theory of transmission mechanism of monetary policy, this paper studies the interest rate channel and the capital market channel and it is divided into four chapters.Chapter one mainly introduces the general theories on the transmission mechanism of monetary policy established by western economists and the evolution of monetary policy in China. This chapter contains three parts: The first part is a brief introduction for the transmission mechanism of the effect of changes in asset structure and wealth and the effect of possibility of credit supply. The second part gives a brief introduction for several transmission mechanisms mainly discussed by the western scholars. The last part introduces the latest development of theories on monetary policy.Chapter two discusses the features of the open economy system and the changes of the monetary policy transmission mechanism under the open economy system.Chapter three focuses on the theoretical proof of the interest rate stickiness and the ineffectiveness of monetary policy transmission under three circumstances, which are fixed interest rate, financial fragility in the open economy system and the financial restrictions.Chapter four mainly discusses the capital market transmission mechanism and its affecting factors. This paper puts forward that there are several changes of the capital market transmission mechanism in the open economy system. Much heed should be paid to those changes in order to empower the capital market transmission mechanism.