Macro-control And Spillover Effects Of The Monetary Policy: A Study Based On The TVP-VAR Model

Since the1990s, the status of China’s monetary policy in macroeconomicregulation has become increasingly prominent, while the interest rate as an importanttool of monetary policy plays an important role in the macro-control. With theincreasing complexity of the economic environment as well as the continuousimprovement of the level of China’s opening up, the interest rate policy tool and itsconduction mechanism also reflect the complexity and variability. Therefore, theestablishment of an appropriate model to study the interest rate policy effect and itsvariability is necessary also to make a valid evaluation of the regulatory effects of theinterest rate policy.Firstly, we extend the traditional vector autoregressive (VAR) model to atime-varying parameter vector autoregressive model (TVP_VAR) model，allowingits parameters and coefficients to be time-varying. Then we establish a four-variableTVP_VAR model for China’s macroeconomic empirical analysis. The model withinterest rates as a monetary policy tool, aiming at three macro-control goals:economic fluctuation, inflation and unemployment, except for the balance ofinternational payments, analyze trends and characteristics of the effect of regulationin recent years, and reveals China’s economic structure the time-varyingcharacteristics in recent years. We respectively use three interest rate instruments: the7-day effective interbank interest rate, the one-year lending rate and the effectiveinterest rate gap in the model building, and thus further comparative analysis of theeffect of the different interest rate instruments. Due to the impact of economicglobalization, a country’s monetary policy is difficult to implement independently, Onthis basis, the paper further comparative analysis of macroeconomic regulation of the monetary policy of China and the United States and its spillover effects，Respectively Comparative Study of the characteristics of the output effect and theprice effect of the monetary policy of the two countries and their spillover，thenreveal the time-varying characteristics.Through the analysis of the effect of the macro-control of macro monetary policy,we have concluded: The effect of China’s monetary policy’s effect for the regulationof the rate of inflation and the output gap have significant time-varyingcharacteristics, and there is no time-varying for the unemployment rate’s regulation;China’s interest rate instruments for three target’s regulation had a significantcounter-cyclical effect; regardless of which target variable’s regulation, the effect ofregulation of the real interest rate gap is the most remarkable; regulation of themonetary policy during the "soft landing" is the most effective; The effective interestrate gap is more suitable as a standard of monetary policy formulation and evaluation;China should accelerate the market-oriented reform of interest rates and strengthenthe forward-looking of monetary policy regulation.The analysis of the macro-control and the spillover effects of the monetarypolicy of China and the United States shows that: in an open economy, the Chinesemonetary policy on domestic output gap and the price both have counter-cyclicalregulatory effect; U.S. monetary policy on domestic output gap and price did notproduce the effect of counter-cyclical regulation; monetary policy of China and theUnited States on the output gap and the price on the other side both resulted inspillover effect; U.S. monetary policy for the time variability of the spillover effectsof the output gap and the price level is very clear,but China monetary policy’spillover effects for the U.S. output gap and the price level did not show significanttime variability.Through the analysis we reach the following revelation: China should furtherimprove the market-oriented reform of interest rates; effective interest rate gap is agood reference standard of monetary policy formulation and evaluation; in themonetary policy formulation, we should fully take into account that the impact of it and the spillover effects of foreign policy; China should strengthen the use ofmonetary policy coordination in the international to response to the crisis andfinancial risks.