Financial Crisis, China And The United States Monetary Policy Transmission Mechanism Based On The Var Approach

The article uses theoretical analysis and econometrics method to analyze the effect of monetary transmission mechanism of USA where the current financial crisis happened firstly and China. In terms of theoretical analysis, the article indicates that the monetary policy of USA before the financial crisis is the most significant reason for the crisis. All kinds of channels of monetary transmission mechanism are also discussed in detail before comparing different monetary transmission mechanism of USA and China.In terms of the econometrics analysis, the article uses VAR approach to study the effect of monetary transmission mechanism which is also a common method in this field. Considering the different situation of USA and China, the article chooses different variables to set up the VAR model and studies the reaction of final targets of monetary policy to the intermediate targets. The result is that the output is very sensitive to the changes of interest rate in USA, proving that the monetary policy is an important reason for the financial crisis.On the aspect of policy recommendations, the article proposes some recommendations for China how to react for the economic cycle and financial crisis.