The Micro-foundation Studies Of Monetary Policy Based On The Firms' Investment Behavior

Since the latter half of 2010, the growth rate of CPI has been rising steadily. Until March 2001, the CPI's rate of year-on-year growth in China was 5.4%, which reached the new record high in the past 32 months. In order to keep price stable and overcome the problem of the high growth rate of CPI, the central bank replace the pro-active fiscal policy with the prudent monetary policy. The central bank employs the method of up-regulating the rate of deposit reserve to reach the objective of tight-money. But whether the central bank achieves the set objective or not depends the behavior of micro-units such as incorporates and residents. So the purpose of this essay is to study the effect of firms'investment decision based on their utility maximization on the final effect of monetary policy under the framework of specific monetary policy.Based on sorting out the literature, this paper summarizes the history of the theory of firms'investment behavior and its influencing factors. After that, it builds a model of corporate investment behavior in the monetary policy transmission. And then, it uses the method of complete information static game to analysis how to reach the equilibrium as central bank and company are both searching for themselves'utility maximization. In order to explore the effect of investment behaviors in the monetary policy transmission, this paper empirically examined the mechanism of firms'investment behavior changes on monetary policy efficiency by using a five-variable VAR model. The results show that the sensitivity of firms'investment is less sensitive to the interest rate, but more sensitive to the change of money supply. What's more, firms'investment behaviors have a inhibitory effect on chronic inflation.It is the uncertainty of policy environment and blocked transmission channel caused by dual structure of firms that influence monetary policy effect. In order to enhance the efficiency of monetary policy, this paper suggests that China should maintain a stable economic environment, develop a reasonable interest rate policy, ensure the independence of bank as creditors and vigorously promote financial development strategy to perfect the financial market. Thus, a relatively complete market is created to realize a fundamental effect of firms'investment on the efficiency of monetary policy.