China's Monetary Policy Validity Research In The Financial Crisis

With the financial deepening and the degree of monetization of economy improving, the financial crisis's occurrence's frequency accelerated. Since April 2007, the U.S. subprime mortgage crisis quickly turned into a global financial tsunami. Because of the financial crisis, China's exports dropped drastically and many factories have closed down, and the rate of unemployment increased,and the capacity of total supply was far greater than the demand. In the process of administing Financial crisis , people payed great attention to the central bank's monetary policy, obviously, it's important to research the way of improving the effectiveness of monetary policy during the financial crisis.Reviewing and analyzing the monetary policy and their effectiveness of 1930s' US and 1990s' Japan, we found that at the beginning of the financial crisis, the Government has no time to recapitalize financial institutions to increase the liqudity of financial market, and deal with their non-performing assets, those led to the lose of public confidence.And in the financial market, the efficiency of resource's allocation reduced and the economy falled into a prolonged depression. Different exchange rate policy and new point of economic growth is the key to economic recovery.As the difference of economic system and marketization level existing, according to China's national conditions, the article analyzed the Asian financial crisis in modeling, and found that the effectiveness of monetary policy is uneffect by increasing the M2 to the model to promote the economic growth and the price hike; monetary policy transmission credit channel's effect is obvious, loans on fixed assets investing's have great impac, but the loans have little effect on prices; the interest rate channel of monetary policy produced little effect in the short term, but in the long term the effect is obvious.Analyzing the China's effectiveness of monetary policy during the Asian financial crisis, and the monetary policy's initial results we obtained in international financial crisis in 2008, show that the financial crisis period in China's monetary policy is effective. However, the effective transmission of monetary policy in China is mainly reflected in the credit channel, the transmission of rate channel is less effective; and the monetary policy effects on investment is obvious, but the impact on consumption is relatively small. On the condition that the interest rates have not fully realized in the market and capital market was underdeveloped, clearing the credit channel, and guiding the direction of credit to promote industrial structure; while adjusting national income distribution structure, establishing social security system in order to expand consumption are necessary. Especially strengthening private investment and economic growth are the keys to improving the effectiveness of monetary policy during the financial crisis.