Selected Intermediate Target Of Monetary Policy, Financial Innovation Environment

Traditional intermediate targets mainly concentrate on interest rate and monetary aggregates. But since 1970s the trend of financial innovations and financial disregulation have challenged on the criterion of the traditional intermediate targets - relevance, controllability and measurability. Therefore, monetary authorities in many countries set out to search for other economic variables suitable as the intermediate target. This paper made a detailed analyses on the policy strategy based on inflation targeting, weighted monetary aggregates targeting, interest rates targeting, exchange rate targeting, price level targeting and thinks that rules based on forecast can solve the problems during the implementing and monitoring the policy. Inflation forecast, as the explicit intermediate target, makes the implementation simple. And when the explicit intermediate target of the central bank deviates from the one assigned by the society, monitoring problem comes out. Public criticism as the additional loss enforces the central bank's forecast close to the explicit inflation target. Inflation targeting is powerful as the intermediate target of the monetary policy.This paper states that the policy strategy in U.S. is basically the inflation targeting (not the commonly said interest rate targeting). Some intermediate indicators are in supervision in order to obtain the information on the inflation forecast. It is one kind of the inflation targeting with inflation forecast as the actual intermediate target.At present China is relatively less impacted by the financial innovation. The empirical evidence shows that monetary aggregates is essentially feasible. But in the long run China will face the challenges just like the present western countries. Therefore, we should prepare for that and do some theoretical research on our choice of the future intermediate target. Inflation targeting is probably the direction of future intermediate target in China.