The Central Bank's Financial Strength And Monetary Policy Cost Estimate

Since2001, because the accounts of current and captital surplus, the central bank has accumulate vast foreign reserves. In order to maintain exchange rate stability and control of inflation, the central bank was forced to increase the base money. On the other hand, the central used some monetary policy to the sterillize the expanded money. This has resulted that the structure of central bank’s balance sheet changed tremendously, thereby which affected the financial strength of central bank. This article not only analyzed the changes in this size and structure of the central bank balance and it’s affect to money multiplier, but also analyzed the the mechanism of action and mutual influence of the various sterilization policy. Finally it discussed the relation between the central bank’s financial strength and money policy.This article is divided into four chapters. The first chapter is an introduction, it described the background of this study, reviewed the domestic and foreign scholars’ research methods of policy. And it also described the major innovation of this paper points and deficiencies. The second chapter deals with the structure and the size of the central bank’s balanse sheet, focused on the variation of foreign exchange assets and base money. It also analyzed the impact of such structuai changes on the money multiplier. In the third chapter, we analyed the mechanism of action of the two types of sterilization ploicy and discussed the explicit and implicit costs of the wite-off policy. In the fourth chapter, we first estimated expenditures based on the revenue of the central band assets and liabilities of the central bank’s profitability. Then, a measurement model for empirical analyzed of this basis to discuss that if the selection of central bank’s monetary policy tools consider the financial strength. Finally, the paper put forward some proposal to central bank’s money policy from short-term and long-term.