The Inspection And Analysis For The Regional Effects Of Monetary Policy In China

Since 1984, China has adopted independent monetary policy, which has been in the evolution from the aspects of subjects, policy tools and transmission mechanism. China’s monetary policy includes internal and external transmission from formulating by central bank to playing role. Internal transmission is from the central bank to the commercial banking system. External one is to transfer the intention to the economy through various ways. The thought of Optimum Currency Areas Theory is beyond the administrative framework and to outline the currency area with economic factors. The purpose of this paper is to explore the problem of regional imbalances of the effects of monetary policy, also researched the way how to eliminate the regional effects.The theoretical parts of this paper mainly introduce the Optimal Currency Area Theory and various factors of monetary policy to combine the effect of monetary policy with Optimal Currency Area Theory. At the beginning the paper analyzed the concept of reign from the academic side. The paper also analyzed the effects in region of the People’Bank of China System. At the meantime the paper analyzed the influence from the change of the People’Bank of China System and future trends to monetary policy. So the paper will adopt Provincial-level Administrative Divisions as the basic unit to measure the regional effects of monetary policy. In the empirical process, because of the author’s limited level and complicated process of data and construction of model, the paper used simple way to measure the effect of monetary policy roughly. The paper use M2(this paper use deposits balance of financial institutions of various region to replace the province M2)representing the implementation of monetary policy. The paper adopted nominal, regional GDP in different time of various regions as indicators of economic. Also the paper use CPI in different time and region as price index.The paper adopted model of VAR. Specifically, the paper made the ADF tests with the replacement of M2, GDP and CPI of 31 provinces. Since the model of VAR has higher standard of stability with data, the data must be deleted as long as there is an index instability. Therefore when making ADF tests the paper deleted 16 sample indexes which did not meet the target of stability without follow-up quantitative analysis. But this way would not affect the empirical analysis of the result. Though the ADF tests, the relationship of M2, GDP and CPI from Tianjin, Hebei, Shanxi and other 15 samples has maintained a stable order. Because in economics the first difference of logarithmic represents the growth rate, a relatively clear economic meaning. The paper made co integration among the 15 samples which passed the ADF tests to discover the relationship among M2, GDP and CPI in the long run. With co integration tests, there is obvious difference in the relationship of the samples of 15 provinces, and the coefficients of co integration are quite different. The result shows that in different provinces the effect of monetary policy to the growth of economy and the stability to price in the long run is different. Then the paper made the analysis of impulse response with the 15 samples. Though comparing the figures of impulse response of 15 provinces, the paper made the conclusion that there are regional differences in monetary policy impacting on economic growth in the short term. At the same time, the shock from M2 to CPI shows serration fluctuation, which illustrate the current CPI has not been affected by money supply seriously, and the controlling of CPI by the government is stringent.Though the empirical test, we can prove that in China the regional effects of monetary policy is widespread basically, and there are large differences between the long-run and short-run effects. In response, the paper tried to proposed the solution such as, adopting related monetary policy to promote the development of some areas by making use of the regional features of monetary policy, guiding with the Optimal Currency Area Theory and breaking the thought which the particular economy must adopts single monetary policy. For the regions with the same level of development, the regional effects should be diminished possibly to avoid the policy-oriented regional differences.