Research On The Regional Effect Of Chinese Monetary Policy Based On Transmission Mechanism

Currently, the differences in each area's economic structure, financial development, degree of openness, level of economic development, etc, are more and more significant in China. Neglecting the imbalanced domestic economic development of all regions and designing or implementing an unified monetary policy may weaken the effectiveness of monetary policy and increase the differences of regional economy, inducing regional economic development imbalances. So it's of significant practical value to study the regional effect of our country's monetary policy, in order to improve the effectiveness of monetary policy and promote regional coordinative development.This paper first mainly reviewed the theory of Optimum Currency Area and the theory of monetary policy transmission mechanism. Combining the overall economic situation presently in China, we analyzed the main channels for monetary policy transmission, the interest rate channel, credit channel, the asset price channel and exchange rate channel. In theory, we showed that our country is not yet an optimal currency area, existing different effectiveness of monetary policy in each area.Based on the theory, we built an indexes system on regional economic indicators and then reclassified our country into most developed regions, more developed regions and less developed regions totally three regions. After that, we constructed the vector auto regression model (VAR) and impulse response function to test the regional effect of our country's monetary policy, using the monthly data from January 2004 to December 2009. The empirical analysis showed that both of the output effect or price effect of monetary policy, the regional differences are significant. And then we focused on analyzing various regions' performance on the economic structure, financial development, degree of openness, level of economic development, etc. Comparison revealed that there are important differences in each area's economic or financial development. That offered further explanations for the existence of the regional effect of our country's monetary policy. In the end, considering our country's actual situation, this paper provided two methods to deal with the problem of the regional effects of monetary policy. One is constructing and carrying out different regional differentiation of monetary policy. Adjusting the regional economic and financial differences is the other one. Taking some measures from these aspects, we can ease the conflict between unified monetary policy and different regional characteristics, improving the effectiveness of monetary policy of our country.