Analysis Of The Monetary Policy Effect On The Economic Growth Of China

Since the inauguration of the Reform and Open-up, not only the role, method but also the working area of the Chinease monetary policy has changed substantionally, and the effect on the economic growth and the stabilization of currency is totally different from before. Moentary policy becomes a prevailing macroeconomic policy, owing to this point, study on the effect of monetary policy has been taken as a front-line subject of theoretical finance research. The 1997 Asia Financial Crisis has given a strong negative impact to our internal and external demand, and has slowed the speed of the economic growth. In the face of the tough situation, our government has adopted corresponding measures, in order to stimulate the internal demand, counteract the negative influnce of the international economic stagnancy, the Central Bank has dininished the interest rate continuously for eight time, has abandoned the scope limitation of loan, and has integrated and reduced the reserves and so on, however, these policies above haven't achieved its expected results, neither investment or consumption has recovered significantly, all of the banks practiced over-prudent loan. Previously, as the foreign exchange increasing dramatically, to keep the exchange rate steady, the Central Bank has to issue high money, the channel by which the base money issued, has restricted the use of the monetary instruments. Although the reforms of the state-owned enterprises and commercial banks are on their way, but "Rome wasn't built in a day", they still have room to improve in the course of reforms for enterprise management structure and their conductive role in themenetary policy scope......All of them indicate that the internal and externalenvirnment should be bettered, and the channel for the monetary policy needs smoothing, they really play crucial roles in the adjustment and improvement of economy, thereby, this article will focus on research and solution of these problems.By Analyzing on the effects of monetary policy on the economic growth since the Open-up, this essay will concentrate on these three problems: what's the contribution of the moentary policy to the economic growth, what's the problem while carrying on monetary policy and by which way that we can propel the monetary into more efficient use and serving to the economy. In details, after representing the meanings of these problems and the summary of the researches on these problems in chapter 1, we will proceed to chapter 2, and display the theory of monetary policy effect on the economic growth by the dominant schools, also in this chapter the mechanism of monetary policy will be introduced, all of them will serve as the theoretical basis and starting point for the following chapters. Chapter 3 constructs a quantitative model for the empirical analysis of monetary policy on the economic growth. After ADF (Augment Dickey-Fuller) test, EG (Engle Granger) test and Granger test, a double-variable regression model can be constructed and results show that there exists long-run relationship between M2 and GDP, via these results an ECM (Error Correction Model) can be established to display the short-run relationship between them. From the model we can draw a conclusion that China's monetary policy has limited effects on the economic growth though we can't deny the effects, the effects mostly converge at short-run, in long-run the effects appear to be less signicient, and the inner automatic equilibrium mechanism between them can render the system to recover stablity when swinging. In allusion to the results referred in chapter 3, chapter 4 will offer the factors that handicap the effects of monetary policy on economic growth, including the lacking independence of the Central Bank, the insufficient development of the interest rate liberalization, the obstacle to the perfectness of state-owned enterprises and commercial banks, the rapid increase of the foreign exchange. In chapter 5, we will discuss proper means and suggestions that can enhance the effect of the monetary policy on economic growth, among all those supplied suggestions, the ripid growth of foreign exchange under new circumstance will be discussed more detailedly, and this very trait distinguishs this article from those of this kind.