Empirical Testing On The Effectiveness Of China's Monetary Sterilization Instruments

China's international balance of payments double surplus has been soaring since early 90s last century. The great international balance of payments surplus is in terms of successive addition of the Central Bank's foreign exchange reserves under the RMB's peg to the dollar exchange rate regime. The increment of foreign exchange reserves caused directly that the Central Bank issued passively monetary base by increasing the RMB counterpart of foreign exchange reserves. In order to realize the adjustment objective of the monetary supply and prevent from high inflation, the Central Bank conduct various monetary sterilized instruments(scale adjustment of re-loans, open market operations, publish of central bank notes and adjustment of savings reserve rate etc.) to eliminate the extensive effect of the local currency supplies caused by the increasing foreign exchange reserves. Are these monetary sterilized instruments effective? It has always been a hot question which is concerned by the economists and the scholars at home and abroad.The research mainly includes three parts.First part is carried on theory analysis about monetary sterilization.First,we clarify the meaning of monetary sterilization on theory.Then,clarifying theoretical foundation and comparing the major sterilized instruments.Furthermore, studying systematicly the main international theories about monetary sterilization.Second part reviews and analyzes the operation of the monetary sterilization conducted by our country's central bank in stages.Third part is empirical analysis on China's monetary sterilized instruments.First,explaining the criterion on effectiveness of sterilized instruments.And then,discussing the approach, the theory and the model taken in the investigation.Furthermore, empirically testing on the compositive effectiveness of China's monetary sterilized instruments and testing on the effectiveness of each sterilized instrument.In the end,discussing the result and analysizing the causes from the perspective of environmental factor,institutional factor and excessive fluidity.This thesis set up a theoretical model basing on Monetary Approach to Balance of Payment (MABP) and the Central Bank balance sheet, and then empirical tested the effectiveness of monetary sterilizated instruments conducted by the Central Bank during January 2001 and December 2007. And the thesis examined the time lag and the effectiveness of a single instrument implemented by the Central Bank during the same time. We come to three conclusions: First, through operating the instruments such as adjustment to re-loan, open market operations and adjustment to reserve rate etc.,the People's Bank of China partially sterilized the increment of monetary supply caused by the soaring double surplus of China's international balance of payments, so that the independence of domestic monetary supply was promised to some extent and carried out mostly the amount target of monetary policy.Second, Monetary authority is undergoing great press of sterilization because the RMB counterpart of foreign exchange reserves is keeping increasing and the instruments which are researched in the thesis except for treasury bonds repurchasing(mainly because our country's treasury bonds market is too small ) are effective on reducing domestic monetary support. But the effectiveness of a single sterilized instrument is not perfect and there is a long time lag.Based on the outcome of the research, the author gave some advises.First of all, to resolve the problem that our country's treasury bonds market is too small. Secondly, to combine instruments to avoid the negtive effect of using single instrument.Thirdly, to reform the regime of exchange settlement and trading and to build multi-level water reservoir of foreign exchange reserve, and to optimize the structure of participants of foreign exchange market, and to release the sterilization tension of the Central Bank by constructing market-maker institution, and to adopt the market principle gradually when reform the RMB exchange formation regime. Fourthly, to lead and control capital flow into the reproduction circulation or flow in the direction government interested, so it can resolve the problem of excessive liquidity and release the Central Bank's pressure of monetary sterilization.