The Analysis Of Monetary Policy Effect On The Ultimate Goal

As the Reform and Opening up penetrated deeply, institution of China’s central bank was established in 1984. Since that, the history of China’s monetary policy is only 20 years. In the early days of reform, because the proportion of expenditure in GDP continued to decline, fiscal policy’s role in macro-economic regulation and control gradually weakened. Even, to the 1997 Asian financial crisis, monetary policy was nearly the only tool of macro-economy regulation, but before 1997 the effects of monetary policy was not satisfactory. In 1998, when was also during the Asian financial crisis, there was insufficient effective demand and deflation. In order to stimulate economic growth and to avoid a "hard landing" for the economy, government expanded fiscal expenditure, and increased government investment. Until that time, fiscal policy became one mean of macroeconomic control again.In 2007, the economy seemed overheat, and in the early of 2008, central bank took the "double tight" macro-control policies, even the deposit reserve ratio raised to highest level in history. but then, coincided with the rapid deterioration of the international financial crisis, accompanied by a sudden reduction in foreign trade, China’s economy declined quickly. As a series financial plan to stimulus economy came out, monetary policy rapidly steered, considering the policy lag effects of tightening policy. But the expansionary policy was not immediately effects, so the economy did not quickly rebound. Judge from the current situation, the expansion of the macro-control effects have gradually emerged, and the economy tends to stabilize, the economy shows the signs of rebound initially. But, China’s economy has still experienced tremendous ups and downs.Retrospect the history, effect of monetary policy is also not satisfactory, probably because China’s economy is not complete market system, which leads to the western classical theory inconsistent with China’s national conditions, and because the rapid transformation of China’s economic and continuous process make the regulation of china’s economy difficult to grasp and understand.Effects of monetary policy has been one of the topics that the monetary authorities and the public most concerned, especially under the current domestic and international situation. As the economy advances and economic structure changes, effects of monetary policy is changing in the final results and conduction processes. How about the time lag and processment of monetary policy effecting? How to improve the efficiency of monetary policy? Currently proposed and studied these issues have important theoretical and practical mean.This article explores how China’s monetary policy impacted ultimate goal in recent years, and provides advises for monetary policy implementation and reference for theoretical research. It mainly use the macro-economic framework to analyze the effects of China’s monetary policy on ultimate goal theoretically, and applys SVAR and FAVAR model checking effects of monetary policy on the ultimate goal, based on the monthly data from 1998 to 2008, and rises policy recommendations according to the conclusions of theoretical analysis and empirical test. The main contents and conclusions of each chapters are followed.The first chapter reflects the research background and purpose of the article, and introduces the research ideas, content and feature.Chapter II is the theory and the literature review section. This section first describes the basis for monetary policy-related concepts and theories,’including monetary policy, policy tools, policy objectives and transmission mechanism. After, based on the analysis difference and connection between policy effectiveness and monetary policy effects on the ultimate goal, this paper makes a overview of the pointview of major schools of economics on the effectiveness of monetary policy and research. After that is the focus of this section, from the perspective of foreign and domestic, literature of resarech effects of monetary policy on the ultimate goal are summarized and evaluated. Last is the summary of this section. This chapter provides new perspectives and ideas for theoretical research for the article, and laying an important theoretical basis follow-up analysis.Chapter III is the section of the theoretical analysis. This section in the analysis of western theory and Chinese practice based on the analysis of our theoretical framework of monetary policy, thus theoretically discussed the ultimate goal of China’s monetary policy impact. In theory, this section discuss the tightening of monetary policy would have found a negative output and price effects, the output effects of monetary policy faster than the price effect, but both continuing a gradual decline over time eliminate. This conclusion needs further evidence, but also for the fourth chapter provides a test target.Chapter IV of the article is the empirical analysis section. First, conducted a brief overview of methods that used to research monetary policy, and evaluated the advantages and disadvantages of each methods. Then, put forward empirical model of this paper. According to the discussion, it is nature that use SVAR and FAVAR (Factor Augement VAR) as an empirical. Finally, compared the empirical results of two model to obtain the evidence of conclusion:The response of price to monetary policy shock is sharp and rapid, the duration is also short, while the output response is relatively smaller, and the reaction process is more longer and more instability.Chapter V presents conclusions and policy recommendations. First, on the basis of inducted the empirical conclusions,extract the policy implementation the conclusions. The policy implementation included policy time-delay, collocation and policy implementation.Throughout, this paper make the more detailed and scientific analysis of the ultimate goal of monetary policy effects, and got more reasonable conclusion. Compare to previous studies, here are three main characteristics. First, has analysed the applicability of China’s macro-economic framework. Second, combined economic theory and quantitative methods. Finally, the article use relatively new empirical method of the present international to analyze china problem.