Research On The Effect Of Finance Innovation Upon Monetary Policy

Contemporary financial innovation originated in 1960's, since 1980's, a new globe-sweeping stage of accelerated development of financial innovation has come. Financial innovation, as a spread to the global wave of financial reforms to the world's finance, has brought profound changes to world finance and economy, which brought a driving force to the economy, but also brought about severe shock to it and put forward a new challenge to the government's macro regulation and control. Furthermore, monetary policy is one of the most important economic policies and an important means of macro-control, so monetary policy will inevitably be affected.Since the reform and opening up, with the gradual establishing of the market economic system and an open and competitive pressure, financial innovation in China has rapidly developed. The behavior of residents, enterprises, commercial banks and other financial institutions also has changed greatly with market-oriented reforms of the entire financial system. Effects in the implementation of monetary policy are also increasingly concerned about. Whether China's financial innovation fundamentally affected monetary policy with the money supply as an intermediary target?Whether the central bank needs to make appropriate adjustments to monetary policy?These are the urgent problems which China's macroeconomic regulation and control is faced.On the basis of the results of research by a lot of scholars, this paper first systematically analyze financial innovation and its effect on stability of money demand and controllability of money supply, and then study in detail the impact of financial innovation on monetary policy tools,intermediary objectives and transmission mechanism, and then analyze the effect of financial innovation upon monetary policy of China by using econometric methods such as Granger causality test, cointegration test, vector autoregression model (VAR) and impulse response function, and by using the data in China. At last, the suggest about monetary policy of China is brought out.