The Empirical Study On The Influence Of Currency Mismatch On The Validity Of Our Monetary Policy

Currency mismatch refers to the phenomenon that the currency of assets does not match the structure of liabilities, or the currency of income does not match the structure of expenditure, for the use of different currency values. Currency mismatch is widespread among emerging market economies and it's a difficult issue to resolve in short term. It could lead to currency crisis, raising the cost of resolving the financial crisis, interfere with the operation of exchange rate system, and also affect the effectiveness of monetary policy, which makes extensive and profound impact on macroeconomic. China is a emerging market country, there are serious claims of currency mismatch in China. Because of the existence of currency mismatch, the implementation of monetary policy is not very effective at present. The effectiveness of monetary policy is an important issue in both theory and practice.This paper combines the research of currency mismatch and the effectiveness of monetary policy together on the basis of a large number of literatures. First, this paper calculates the severity of China's currency mismatch based on China's economic and financial background, and makes analysis of its causes, characteristics and trends. On this basis,this paper analyses the influence of currency mismatch on the effectiveness of monetary policy from the aspect of output and price effects referring to Karras's vector auto regression (VAR) framework, other scholar's treatment, and China's economic environment. The existence of currency mismatch reduces the effectiveness of monetary policy and causes inflation. Common conclusion is: the existence of currency mismatch makes a great influence to the implementation of monetary policy. Finally, this paper puts forward the corresponding policy proposals. We should propose a package of monetary policy, change the strategies of trade, improve the foreign exchange debt management system, promote capital market, and take part in international cooperation. Only this way, can we reduce the degree of currency mismatch and improve the effectiveness of monetary policy.