China's Monetary Policy Credit Channel Existence

Nowadays "credit channel" of conduction mechanism of monetary policy has evolved three theories:bank credit channel, balance sheet channel and financial accelerator. These theories prove that credit channel is an essential factor in economic growth by analyzing the monetary policy transmission mechanism on macro level, middle level and micro level. So the paper analyzes "bank credit channel","’balance sheet channel" and "financial accelerator" in theory, then empirically analyzing economic operation in China. Besides interest rate and money supply, bank credit also affects macro-economy. The increasing amount of bank credit promotes growth of macro-economic and the decreasing amount of bank credit leads to economic recession. By empirically analysis of the relation of GDP, money supply and credit amount, bank credit channel is existed in the monetary policy transmission mechanism in China.However, the existence of credit channel is superficially described above. How credit channel affects economy isn’t described in detail. In real world, business banks are stressed by Monetary Authority and Regulatory Authority. Monetary Authority regulates the amount of credit by ratio of deposits (short for DR) and Regulatory Authority has an strict requirement of balance sheet of business banks. Any way of saying, the ratio of capital adequacy (short for CAR) of business banks must be in parallel with the Regulatory Authority requirement, which indirectly controls the amount of credit. The result is that the amount of credit is restrained and has complicated influence in economy. If the requirement of CAR is low and the monetary policy is slack in the period of growing time, the growth of economy will be promoted. If the requirement of CAR is high, the growth ratio won’t be increased in the slack circumstance of monetary policy, particularly the declining process of economy will be enforced in the recession era. The result is proved in China empirically.The run of macro-economy is a continuous process and is affected by micro-economy ultimately. Supposed that families adopt the money in function, monetary authority carry out monetary policy by Taylor rule and entrepreneurs take the production function with the thought of financial accelerator, Dynamic Stochastic General Equilibrium (DSGE) is established. The money impulse will have a heavy effect on macro-economy. By dynare in matlab, the financial accelerator is not only existed in China and also affects greatly.