Study On Validity Of Monetary Policy In China

The debates on the validity of the monetary policy between the new classical macroeconomics and the new Keynesian economics are mainly focused on the elasticity of price, in other words, do prices response to the monetary policy are immediate or lagged? However, in the actual functioning of economy, which theory captures the way that money influences the economy is unclear yet. So, the debate on the validity of monetary policy has not ceased. The purpose of this paper is not to argue for some theory, because every theory is based on its own assumptions, and different assumptions can leads to different conclusions. This paper analyses the validity of monetary policy by empirical testing of the effects of different conductive channels (such as M2 , interest rate, exchange rate , capital market and so on) during the past ten years, which can help improving the effect of monetary policy with theoretical support.There are six chapters in the paper. The chapter 1 gives the meaning of this paper and the method of analysis. Chapter 2 and 3 review the foreign and domestic literatures on the study of validity of the monetary policy, besides, the two chapters summarize the process of reformation of the monetary policy in china. The chapter 4 does the empirical analysis of the effects of different conductive channels during the past ten years in china, the method of this paper extends the prior analysis of scholars in more details, the results are: the credit channel plays the main role; the interest rate channel is in effect as well as the exchange rate channel; the effect of the capital market channel is turning up. Chapter 5 and 6 analyses the factors which can influence the effects of monetary policy, and give a few suggestion on improving the effect of monetary policy of china.