The Comparative Study On The Effectiveness Of Quantitative And Price-based Monetary Policy Instruments

The smooth development of a country’s macroeconomic can not leave the use of monetary policy, and the correct choice of monetary policy instruments can play an important role to the effectiveness of monetary policy. At present, the effectiveness of the use of quantitative and price-based monetary policy instruments have caused a lively discussion to the theorists. In this context, a comparative study of the effectiveness of China’s quantitative and price-based monetary policy instruments, finding the reasons for the differences of effectiveness of different monetary policy instruments has an important practical significance for China’s future monetary policy formulated and implemented, and the financial reform orientation.Firstly, this paper analysis the mechanism between monetary policy instruments and the effectiveness of monetary policy. It describes in detail that how can the different monetary policy instruments contact the intermediate target and thus play a role in the ultimate goal of monetary policy from the theory level. Secondly, it describes the specific use of various monetary policy instruments in China, and has a brief comparative analysis. Then, this paper use econometric models and methods as cointegration tests, vector auto-regression model, impulse response functions and variance decomposition, having a comparison of the effectiveness of quantitative and price-based monetary policy instruments in three different periods as the year of1998to2003, the year of2003to2008and the year of2008to2010. The empirical results show that:the effectiveness of quantitative monetary policy instruments is better than that of price-based monetary policy instruments. The legal deposit reserve policy plays the maximum role in all the quantitative monetary policy instruments, then followed by the open market operations and credit policy. These monetary policy instruments have negative, positive and positive effect with the intermediate target of money supply respectively, and play a better role in the economic growth index. The effectiveness of price-based monetary policy instruments as weighted average interest rate is improving continuously over time. It has a negative correlation with the intermediate target of money supply, while it has a greater impact in the price variables than in the economic variables. Finally, this paper bases on the empirical results of the study, pointing out the lack of applications of various monetary policy instruments, and combining with the current macro environment and the economic situation to enhance the effectiveness of monetary policy instruments.