Monetary Policy Implement And Evolution Of Its Transmission Mechanism In America In Addition With Revelation To Chinese Monetary Policy

Monetary policy plays an important role in Macroeconomic Policy. It isthe monetary transmission mechanism that transmits the policy of central bankto affect the intermediate target and realize the final target. We intend toclarify how monetary policy affects real economy by studying the relationshipbetween monetary input and economic output, find out the obstacles andmethods for improving, and make monetary policy regulate macroeconomicactivities effectively.Besides the introduction, the paper still includes three sections as follows:Section 1: summarization of the theories that the monetary policy ofU.S.A relies on. Theoretically, The American monetary policy and monetarytransmission mechanism pattern are mainly influenced by Keynesian theoryand monetarism. That is why we mainly study the two schools in this paper.The study of monetary theory between the Two World Wars begins withthe birth of The General Theory of Employment, Interest and Money, writtenby Keynes, 1936. In this book, it considered the interest rate as the core ofmonetary transmission mechanism.In the sixties of the 20th century, monetarism, which is represented byFriedman, challenged Keynesian monetary theory. There are two differencesconcluded in this part, they bring on four theoretical distinctions.In the seventies of the 20th century, controversy between the two schoolshad abated. New Keynesian economics and new classical economicscomplement each other.After the eighties of the 20th century, the two schools use other's theoryof monetary policy for reference, the basic problems had been settled thoughcontroversy still existed. In this period, we analyze the development ofmonetary policy by studying operating rules, final target and intermediatetarget.As the core of monetary theory, monetary transmission mechanism isborn out of monetary theory and goes further. They are classified byeconomists as two sorts, to one of which we introduce in this paper according,that is: Interest rate channel, non-money financial assets price channel, creditrationing channel and exchange rate channel.From 1940s to early 1950s, this period could be summarized asKeynesianism period. The character of the FED's independence during thisperiod results in many contradictions. Generally speaking, monetarytransmission mechanism operated mainly by Interest rate channel, the target ofinterest rate became the most important regulation.The period between 1950 and 1970 could be viewed as Monetarismperiod. The FED accepted monetarism opinions and changed the operating ofmonetary policy, that is, take M1 as intermediate target. It indicates that themonetarism has been at the crest.The period between 1980s and early 1990s could be named as Discretion.Research on monetary transmission mechanism emphasized the transparenceof information and action of financial agency. During this period, the FEDapplied operating targets flexibly and the monetary policy took much effect.After the nineties of the 20th century, Greenspan pointed out that theFED will take "medial" concept instead. That is, interest rate neither stimulateseconomy nor restrains it;actually, it makes monetary policy much effective.Section 3: Revelation to Chinese monetary policy and operation. Chinesemonetary policy was established gradually after 1994.At the present time,interest rate is the uppermost monetary instrument;non-money financial assetsprice channel begins to take effect;credit rationing channel especially the bankcredit channel is still important;exchange rate channel also improved.There are four revelations to Chinese Monetary Policy implement:(1)The choice of monetary policy regulation: China should choose rulesto keep on stability and continuity of monetary policy, solve the problemsduring the whole process.(2)The choice of monetary policy final target: In the long term, we shouldchoose price stability, and in the short term, we should adjust the targetpractically.(3)The choice of monetary policy intermediate target: Interest rate will bethe final choice to China, but at present, we still use money supply as ourintermediate target because of the underdeveloped market.(4)The improvement of monetary policy instrument: We should paymuch attention to open market operation construction, improve Inter-banklending market in order to get better approach.At the end of the paper, the author proposed three advices as below:(1)Exerting to breed money market.(2)Promoting the reformation of commercial bank and deepening thereformation of States-owned Enterprise.(3)Carrying through interest rates liberalization steadily.