The Effectiveness Of China's Monetary Policy

It is not until the 1930s, after the Keynesian Revolution, that the monetary policy really has an effect on macroscopic readjustment and control. From then on, the topic that whether the monetary policy is effective and its power has been the point matter at issue between the scholars at home and abroad. In 1984, The People's Bank of China, as the country's central bank, began to exercise the monetary policy and readjust as well as control the macro economy. But the effect of China's monetary policy has launched an intense argument in academic circles in China with various opinions since 1997.In this article, we try to study the different validity of monetary policy on industry and agriculture and then analyze the reasons of its origination during China's transmission period from a unique perspective of dual economy. The paper is organized as follows. Firstly, there is a review of the research findings in the field of monetary policy which were written by the scholars both here and abroad, and we compare the different opinions of different scholars and then give a brief appraisal to their viewpoints. Secondly, there is an analysis of the characters of dual economic and financial structure during China's transmission period. Thirdly, we analyze the effectiveness of China's monetary policy on industry and agriculture by using econometric model, and then discuss the reasons of it. Lastly, we state the research conclusions of the paper and provide some suggestions with the consideration of the characters of dual economic structure in China.The main conclusions of the article are as following. Firstly, there are serious characters of dual structure in economic and financial domain in China. Secondly, Money supply is more suitable than interest rate as the intermediate target of monetary policy. Thirdly, on the whole, the effect of China's monetary policy on industry is stronger than that on agriculture. Finally, the credit transmission mechanism of monetary policy plays a significant role in macro-adjustment, while the interest rate transmission mechanism cannot regulate the operation of the macro economy effectively.There are two innovations in this article. Firstly, when it comes to the view and content of the research, this article studies the effect of China's monetary policy on industry and agriculture with the consideration of the characters of dual economic structure. Secondly, we use VAR model, Granger causality tests, and impulse response function as well as variance decomposition to examine the different validity of China's monetary policy on industry and agriculture, and then analyze the reasons of it. With these methods, we then provide empirical and theoretical reference for the central bank in making and implementing monetary policy.