Study On The Effectiveness Of The Monetary Policy By Local Government's Investment Impulse

Our country central banks have continually implemented unified monetary policy to regulate economy, but the effect of monetary policy is depressing. Many scholars in our country discover our country's monetary policy has obvious region effect when they conduct the empirical study to the domestic monetary policy. At the same time, the scholars find that the effect of monetary policy is mainly affected by conduct channels. We often say we should find the essential factor when solving problems. If we can find the reason why the monetary policy fails to effect, we can put forward effective advice and policies to change the region effect of our country's monetary policy. Therefore, this paper starts from the investment impulse of local government and expect to make some explanations to factors influencing our country's monetary policy effect.Since China's finance decentralization reform in 1994, local authority has played an irreplaceable role in pushing economic development. The rational investment of local government will lead to the long-term stable development of economy, but the fact is not so optimistic. Therefore we guess that local authority's non-rational behavior will affect the validity of monetary policy. So this paper conducts the research from the theory stratification and analyzes the function mechanism of the conducting channel of monetary policy. Moreover, it uses the game theory to analyze the competition relation between the central authorities and the local authority. The key connection between local authority behavior and the monetary policy lies that the local authority uses its own administrative superiority to influence commercial bank's credit delivery in its area based on the GDP growth and maximization of the financial revenue, and then affect the validity of monetary policy. The second step of this paper is to define local authority's investment impulse and analyze the system, policy-making and the cultural reasons for the investment impulse of local government. If the date in reality can prove the investment of local government is sometimes impulsive and has affected the validity of monetary policy, we will have found the key factor for the inefficiency of monetary policy. Therefore, this paper has established a dynamic kneading board model in empirical study, and examines it with system GMM and the tool variable method step by step. The examination has found that the local authority and the commercial bank will influence the validity of monetary policy by carrying on the restriction on credit volume. At the same time, the intense investment impulse of local authority is the main reason for the fast growth in economy. At the same time, because our country implements the special system of"the administration is responsible until completion, financial decentralization", the proportion of Local authority revenue in the national finance revenue and expenditure can reflect the assignment situation on"the governance"and"the property rights". Therefore we also have proven the influence of central authority's behavior and the local authority competition to the economic growth from the short-term and the long-term angle. In the end, this paper put forward reasonable policy proposals according to the theory in this article and empirical analysis from the aspect of our country equity system reform, the financial decentralization reform, the achievements system of examining and assessment reform and the monetary policy conduction channel and the regional operation.