Comparative Study On Choice And Validity Of Monetary Policy Intermediate Targets Between China And Korea

As the bridge where the monetary instruments get in touch with the final goal, intermediate targets have very important function in the monetary policy. Its validity has determined the implementing effect of the monetary policy directly. The intermediate targets of monetary policy are essential to the success of monetary policy. The choice of intermediate targets of monetary policy depends on the economic conditions such as the stages of economic growth, the banking system, the development of financial market, as well as the institutional reform. Nowadays our country implements money supply targeting. But the system has showed defects. A lot of scholars have studied this problem and proposed suggestions. This paper compares the intermediate targets of monetary policy and their validity in China and Korea and analyzes their merits and shortcomings. It also finds out what our country can learn from Korea. At last, it makes prospective study for the reformation of monetary policy of our country.This paper consists of four primary parts.The first part expounds the basic theory of intermediate targets in monetary policy system. The theory includes basic theory of Keynesianism, monetarism as well as others. Then it introduces western countries' practice. It is about the interest rate target system in 1950's and 1960's, money supply target system in 1970's andl980's and inflation targeting since 1990's.The second part is the study on formation and development of intermediate targets in China and Korea. Mentioned Korea, on the basic of analyzing the economic and financial system of Korea, it deeply studies the trace of changing in intermediate targets of Korea from 1950's. For China, it reviews our country's choice and development on intermediate targets since 1980's. The purpose is to find out the reasons for these changes.The third part is mainly about the comparative studies on the validity of the practice of intermediate targets in China and Korea. According to the indicator system that is widely used to evaluate the intermediate targets, the paper makes qualitative and quantitative research on pertinence, controllability and mensurability separately. Because inflation targeting is carried out in Korea, the paper analyzes the practice of this institution depending on the definition, characters and conditions of it qualitatively. It draws the conclusion that inflation targeting is effective in Korea. When evaluating China's situation, the paper uses the theory of co-integration and statistical analysis. The result is that there are so many defects in the system that the validity is poor. On the basic of analysis above, the paper makes comparative studies on the validity of intermediate targets and sums up the root of the two countries.The last part is suggestions on reformation of our country's intermediate targets. The method is to implement the inflation targeting following the example of countries such as Korea. First of all it analyzes the advantages and disadvantages of inflation targeting. Then according to Chinese actual situation, it raises the problems China must solve as well as specific policy recommendations.