The Analysis Of Transmission Effect Of Money Market To Monetary Policy

The monetary policy of a country ought to change from direct controlling wayto indirect regulating way, accompanying the economy develops and market-orienteddegree is being deepened uninterrupted. But the necessary condition of the change ofmonetary policy is developed money market. For the following reasons, (1) the basis ofimplement of indirect monetary policy is money market. Under indirect regulatingpattern, the government must regulate monetary base and benchmark interest rate firstby money market trades, and then attains its macro-control's objectives.(2)Moneymarket provides necessary space and conditions for indirect regulating tools ofmonetary policy, and no general regulating tool separated from money market can beapplied. For instance, legal required reserves policy putting into effect must takeinter-bank borrowing marketplace as backing; Retrocession policy putting into effectmust need to take developed bill marketplace as basis; Market overt business carryingout also must take developed short period bond market as premise.(3)The signal ofinterest rate in money market is important monitoring index and market lever, andbecomes important conducted index, too.(4)As important financial channel, moneymarket also becomes critical link by which central bank can influence cash flow andeconomy behavior. So we can see the important effect of money market to theconduction of indirect monetary policy.However, judging from the real condition ofour country, the important conducted function of money market in regulation is ignoredor denied because it can not make great effort at mobilizing deposit as short-termfinancial market, on the contrary, capital market develops a lot. Under the situation thatmoney market falls behind, financial market develops inharmonious, indirectmonetary policy is difficult to be put into effect, so central bank has to regulatequantity and price of credit directly, which is direct administration of monetarypolicy. Direct regulation is short of elasticity and affect acutely, which not only violatesthe law of value and market principle, but strangle the economic vigor and bringfinancial fluctuation conversely. Therefore, the restriction of money market to monetary policy is outstanding, which is also the research purpose of this article.I adopted methods of integration of parallel analysis, history analysis andlogic analysis in this culture. I also compared the different conducted effect of moneymarket to monetary policy in different countries, and based on Chinese own condition,chose the latest economic cycle which is from year 1998 to 2006 as the studyobject,analyzed the conducted effect of money market in different economic stage. Atlast, I provided relative suggestions on the outstanding problems which are existing ourmoney market. I suggest that China should reform foreign currency managementsystem, standardize bill market, build and perfect treasury bill market and other moneymarkets, build a balanced, harmonized and developed money market system step bystep to create necessary conditions for transformation from direct administration toindirect regulation and improve the conducted efficiency of monetary policy.