A Study On Inconsistency Of China’s Quantitative And Pricing Monetary Policy Instruments

According to the different mechanism, monetary policy instruments using by China’scentral bank can be divided into quantitative instruments and pricing instruments. Thisthesis makes statistical analysis of monthly financial data from2003to2012, includingGDP growth rate, inflation rate, M2, adjusted deposit reserve rate and real interest rate.Then it finds that the use of quantitative monetary policy instrument is not as often as thepricing one. In details, Central bank often used quantitative instrument, say depositreserve rate, but always controlled interest rate, which is included as a pricing instrument,at a lower level artificially. These go against the currency market equilibrium theory.Although inconsistent application of quantitative and pricing monetary policyinstruments don’t match the traditional monetary policy theory, China realized themonetary policy target of sustaining economic growth against the internationalbackground of global economic recession. It shows that China’s monetary policyauthority has its special consideration when using quantitative monetary instruments. So,this paper also attempts to find reasons in the following aspects: characteristics ofquantitative monetary instruments and the degree of financial marketization in China.After both theoretical and empirical analysis, it finds that quantitative monetarypolicy instrument is the correct choice to control liquidity against China’s currenteconomic background, but this doesn’t mean quantitative monetary policy instrument isthe only treatment to help our country in the long term, not to mention the best way. Ifkeeping no use of pricing monetary policy instrument, it is sure to bring out moreproblems in the long run. Therefore, China is needed to deepen the interest ratemarketization and exchange rate system reform ceaselessly, and improve the microscopicfoundation of interest rate, then use quantitative and pricing monetary policy instruments comprehensively. Only in this way, can China fundamentally coordinate the relationshipbetween economic development and price stability.