China's Monetary Policy Transmission Mechanism

After the global economic crisis triggered by the U.S. subprime mortgage crisis in2007,countries are taking active measures to rescue the economy. For example, the United States hastaken quantitative easing for four times, first of which was to provide liquidity support for suchcorporate bonds as the government-sponsored enterprises like fannie mae, Freddie MAC, then toincrease the base money and ease the government’s fiscal crisis by buying Treasury bonds, finallyto lower the short-term bond rate through twist operation, theplanof Fed has reached the limit ofthe monetary policy tools that central bank can use; In Europe,the Regional integration make thecountries loss independent monetary policy, the internal Gaps and contradictions can’t unifymonetary policy to provide liquidity support for the bond markets of the countries in crisis;Similarly,China started4trillion investment projectsto stimulate domestic demand in2008toavoid recession.In this crisis, there was a phenomenon that the countries liked to use monetary policy otherthan fiscal policy, butthe monetary policy didn’t let countries out of the crisis, and the countriesare facing the plight of the fragile recovery.For China, the long-term economic growth rate beganto decline, the "12th Five-Year Plan” reflects the government’s recognition, which is to dropdown the average annual economic growth target. Currently, the preliminary statistics ofeconomic growth in2012is7.8%, the target of the2013economic growth is setted to7.5%,which indicating thatChina’s economic growth rate is likely to enter a long-term decline channels,and the M2/GDP index has reached128%in2012, the diagram of the trend of M2/GDP indexas below: The diagram Shows that there are some problems in the money supply of China, from theintuitive, we can see the decline in the marginal effect of money supply, taking into account thedecline in the GDP growth rate, it is easy for us to ponder thatas money and credit expanded, butthe effectiveness of investment in the real economy is declining at a faster rate, soweneedresearch much more abourt the relationship between monetary policy and economic growth.I study thequestion in the interbank bond market, and use the granger causality tests andVAR model, cointegration, intervention analysis model and other research methods to research therelationship between monetary policy and national economy and analyze the role of the bondmarket between the economic development and the monetary transmission,then analyzetherelation over the SHIBOR, CHIBOR and bank pledged repo rate. The empirical results show thatthe money stock indicators──M2has greater influence on the national debt index and certaininfluence on the index of the policy debt-financed bonds, the index of national debt andpolicy-related debt-financed have a great influence to the national economy and significantlynegative correlation on the CPI and the industrial added value, which have impact on investmentin fixed assets, but the effect of national debt is bigger, so we can recognize that national debtinterest rates is more fundamental, so investment in fixed assets may depend more on nationalfinance and state-owned enterprise investment, and interest rates are close to Treasury bonds; Inthe study of benchmark interest rate that the SHIBOR which central bank focus to cultivate isunable to assume the role of the benchmark interest rate, the repo rate of the collateral bonds canassume the role of the benchmark interest rate; the study of the relation betweenthe rate of depositreserve funds and the bond market found that during the period of excess liquidity, the impact isless obvious,butin certain period, the adjustment of reserve has a certain influence on the bondmarket, which lasted1week and then leveled off.