A Study On The Selection Of Intermediate Target Of Monetary Policy In China

In order to assume a stable currency, regulate the economic and financial supervision, to ensure output stability and economic growth, the central bank needs to regulate the economy by operating a policy tool. Among them, the intermediate target of monetary policy plays an irreplaceable role. As to the intermediate feedback mechanism, it can be the monitor of the effects of monetary policy timely and accurately, and make sure the central bank achieve their objectives successfully.At present, monetary policy rules prevailing in the whole world are interest rate rule and money supply rule. Over the past ten years, the early money supply rule gradually converts to the interest rate rule in the major Western countries. However,money supply rule in our country has still been existed. In recent years, because of the unsatisfactory effect, the validity of the money supply rules has been challenged. To determine a more reasonable monetary policy rule is imminent. This paper studies the application of the rules in the current economic, hoping to provide a reference for the improvement of the Monetary Policy.This paper first explains the meaning of the intermediate target of monetary policy, and describes its role in the framework of macro-control. And then compare the mainstream theories about Monetary Policy, including the theory of Keynesian. By analyzing the evolution of the intermediate target of the Western countries, it summed up the Enlightenment to our China. In the empirical part of the paper,we first analyzes the impact path of external shocks on China’s economy, and then create a DSGE model with interest rates rules and money supply rules, to compare the effects of the two rules on the policy control.The analysis concluded:compared to the money supply rule, under the interest rate rule inflation and output volatility caused by the external shocks is smaller and shorter. Therefore, under normal circumstances, the interest rate will be the future of China’s major adjustment target. This paper concludes with a smooth transition of intermediate targets and reform the institutional weaknesses and some recommendations to improve the financial market to ensure the realization of the final objectives.