China's Monetary Policy Transmission Mechanism Analysis

The transmission mechanismlis the core of the study of monetary policy and affects the economy directly. The interest rate is a kind of important tool to regulate macro-economy for the government. In recent years, China's economy has a high-speed growth, which is more than eight percent. And the overheating economy caused inflationary pressure increasing, inflation controlling has become a national priority. People's Bank of China used the policy of increasing interest rate since 2006. During 2007, the central bank has increased the interest rate six times, and raising the deposit reserve ratio ten times. It's so rare to using the rate tools such a large-scale in the world. However, despite the ongoing efforts to, China's inflation has shown in large-scale since 2007, especially joining the continuance of snowstorm, the CPI index is highest in history in the first two months of 2008, which triggered our reflection and questioned: whether China's monetary policy transmission mechanism is smooth, and whether the interest rate on China's macro-control tool whether effective. Therefore, the study of the rate of China's monetary policy transmission mechanism is a great realistic significance, which is conducive to deepening the financial people on China's macro-economic operation in the understanding of many of the practical issues, helps clarify impede conduction of monetary policy and institutional system issues, so as to more effectively carry out China's macro-control and provide a theoretical basis.The author uses the achievements of former studies so reference, and gives the own viewpoints by constructing a proper structure to analyze the subject. First, the Article introduces main theories of interest rate transmission mechanism in western countries, and then studies the actuality of the effect of interest rate transmission mechanism in China demonstratively. After that, based on the essential analysis of the efficiency about present transmission mechanism, the article discusses the factors that restrict and influence interest rate transmission mechanism of monetary policy in China. Finally the article puts forth the reformation target of monetary policy interest rate transmission mechanism and the corresponding innovation proposals to enhance the effect of the interest rate transmission mechanism in China. In this paper, the innovation point is the examination and analysis of the interest rate transmission mechanism from the macro and micro perspective for the transition period of China.