Comparative Analysis Of The Effectiveness Of Monetary Policy Transmission Mechanism In China

The transmission mechanism of monetary policy is the core issue of monetary policy, and the effectiveness of the transmission mechanism is the key to the effectiveness of monetary policy. So, it has been a long time since the foreign scholars began to focus on this issue. Based on the theories of different schools, the scholars have put forward different theories about the transmission mechanism of monetary policy. In sum, it contains the interest rate channel, credit channel, exchange rate channel, asset price channel and so on. Accompanied by the maturity of concerned theories, the scholars from different countries have been using different econometric methods to test these theories, and have drawn a series of different conclusions. This paper just belongs to such an attempt.In1998, the People’s Bank of China gave up direct control of the credit scale of commercial bank and announced that it will make the quantity of money supply as the only intermediate target of monetary policy, which means the shift of the central bank’s monetary control in China. Since then, China’s monetary policy has been playing a very important role in promoting the stable and rapid economic growth. However, the decade years of practice of monetary policy also shows that there are several problems in China’s monetary policy system, one of which is the weak efficiency of monetary policy due to the barriers in the transmission of monetary policy. This paper will systematically analyze the transmission mechanism of China’s monetary policy, and compare the effectiveness of different transmission channels of monetary policy.Specifically, this paper will establish an SVAR system which includes monetary policy intermediate target variables, the key variables of the monetary policy transmission channels, and the ultimate target variables of monetary policy based on the existing theories. Then we will perform the impulse response analysis and the variance decomposition analysis to analyze the actual performance of different transmission channels of monetary policy. The empirical analysis shows that all kinds of the channels are playing a role in the transmission of monetary policy, but at the same time, the effectiveness of these channels is experiencing varying degrees of weakness. In comparison, looking from the view of the impact on real output, within a shorter period of one year, the role played by the exchange rate channel in monetary policy transmission process is stronger than the other channels. But in a longer period of two years, the credit channel played the most important role in monetary policy transmission process. From the perspective of the impact of price level, credit channel is still playing as a main channel in the transmission process of monetary policy.Finally, combined with the actual situation of the development of the monetary policy system in China, this paper will make some suggestions about the improvement of the effectiveness of monetary policy in China from the view of the transmission mechanism of monetary policy on the basis of the above empirical analysis.