The Impacts Of Financial Disintermediation On The Choice Of Intermediate Target Of Monetary Policy In China

Financial disintermediation，as one of the important financial phenomena，haschanged the financial market in developed countries since the1960s. In China, it isemerging with the development of the country’s capital market. As a result, the validity ofthe intermediate target of the monetary policy has changed enormously. Therefore,financial disintermediation has had a significant impact on the implementation of monetarypolicy in China.Setting out from the selection criteria of intermediate target of monetary policy, thepaper focuses on how financial disintermediation affects the intermediate target ofmonetary policy. First, I analyze the performance and reasons of financialdisintermediation in China, and conclude that financial disintermediation has appeared inChina. Second, I study the effectiveness of money supply and interest rate as intermediatetargets from the measurable, the controllability and the correlation to the ultimate goal. Iput forward the idea that financial disintermediation is weakening the validity of moneysupply intermediate target, but enhancing the effectiveness of interest rate. In the empiricalpart, I succeed in testing how money supply and interest rate effecting on the ultimate goalof monetary policy under the background of financial disintermediation. The methods areunit root test, Johansen co-integration test and Granger causality test, and the resultsindicate that the raising effect of financial disintermediation on interest rate is greater thanthe weakening effect on money supply.Given interest rate market is not fully liberalized in China, I support the dualintermediate target system that mainly depending on money supply and interest ratesupplemented. Finally, I give some suggestions to elevate the effect of monetary policyunder the background of financial disintermediation. First, it is necessary to adjust theIntermediate Target of Monetary Policy in reason. Second, speed up the construction ofmarket-oriented interest rate, give full play to the interest rate transmission.