The Effect Of Monetary Policy Asymmetry Empirical Research In China

It is now more or less accepted that monetary policy plays an important role in controlling aggregate demand and ultimately inflation but with a time-lag. There are two myths in the monetary field:the myth of neutral money and the myth of non-neutral money. Now more and more economists acceptneutrality of money in the long term and non-neutrality of money in the short term.On the basis of validity of money, generally, an expansionary monetary policy can promote economic growth and an tight monetary policy can curb the rate of growth in a given economy. The asymmetric effect of monetary policy means that a negative monetary shock affects the output more or less strongly than a positive shock. Research on asymmetry of monetary policy can help us improve the theory of monetary policy and guide the operation of central bank, thus, studying the asymmetric effects of monetary policy is both theoretically and practically important and meaningful.Based on the China’s data from1997:01to2011:12, this paper uses linear vector autoregressive model and nonlinear smooth transition vector autoregressive model including output,prices and money supply to examine for the presence of asymmetric effects of monetary policy on aggregate activity and price in China. The results imply that the effect of expansionary monetary policy is lower than the impact of tight monetary policy.Though transmission mechanism of monetary channel has been diversified, bank credit channel is still the major monetary policy channel in China. The central bank’s monetary policy indirectly influence business investment through the loans of commercial bank, ultimately output.Based on the actual situation of China, the paper concludes the reasons for the asymmetry of monetary policy in China. In the end, the paper raises some proposals including gradually establishing and perfecting our capital markets and monetary policy transmission channel.