Monetary Policy Transmission Mechanism And Its Effect

Generally, how the monetary policy functions is based on the transmission mechanism. In this paper, the monetary transmission mechanism of China will be analyzed based on the analysis of its theory and practice in the major western developed countries. Since 1984, our transmission mechanism can be divided into three phases with the change of macro adjustment methods which is the evolution from the direct macro adjustment to the indirect one .The effect of the monetary policy is obvious in the direct adjustment-oriented phases, but weak in the indirect phase. And then the causes of our weak monetary policy will be analyzed from the outer and the inner; the immature operational environment of the monetary policy, such as financial structure vs economical structure, the deficiency of the property rights and governance in state-owned enterprise and bank; the inner factors limiting what the transmission mechanism functions, such as the decreasing of money velocity, expectancy of the inhabitant and the enterprise. Chapter four gives the suggestions from six parts as systematic innovation, development of financial market, the coordination of fiscal policy and money policy.