Optimal Intermediate Target In China

It is quiet crucial to choose the intermediate target of monetary policy properly for the central bank, for which is closely connected with the efficiency of monetary policy. In literature, choice of intermediate target is mainly between interest rate and monetary supply. This paper does some research on this topic.This paper includes five chapters. Chapter one introduces the literature on this topic, focusing on Poole's model. And by analyzing the data from 1993 to 2004 in China, gives the optimal choice is monetary supply because the shock from good market is far bigger than it from monetary market. Chapter two considers the historical choice of China and summarizes the change of optimal choices in two stages accompanied with the variety of economical system, financial system and control mechanism of finance. Chapter three estimates interest rate and monetary separately in both aspect as far as the three criterion ofintermediate target——measurability , controllability and relatedness to goal——isconcerned. Chapter four studies the impact to inflation and economy growth of different lay of monetary supply (M0, M1, M2) and interest rate by econometrical method. And test the stability of monetary liquidity. Chapter five concludes that the central bank should emphasis on dominating M2 and in short period control M1.