The Research About The Impact Of Capital Regulation On Asymmetry Of Monetary Policy In China

To stimulate economic recovery, easy monetary policy does have a little effect on output since1998, but tight monetary policy have an obvious effect on output during economics booms, this is asymmetric effects of monetary policy, which caused the most attention. Most scholars emphasis on transition between the market economy and the planned economy, behaviors of residents and corporate, which is the main reasons of asymmetric effects, but rare consider some changes within the financial sector to analyze this phenomenon. Study bank capital regulation on the role of monetary policy in China is few.monetary policy of the central bank affecting the behavior of bank’s credit mainly through deposit reserve ratio and open market operations, thereby affecting macroeconomic growth, but with the market-oriented reforms of monetary policy, the joint-stock reform of commercial banks has achieved significant effect and the behavior of bank’s credit will depend on the weigh about risks and benefits so the rationalization of bank behavior will enhance the asymmetry effect. Since1998, the central bank introduced the bank capital regulatory mechanisms; bank capital regulation mechanism is hard constraints to improve the rational behavior of commercial bank credit so bank capital regulation became an important factor to influence on the asymmetric monetary policy. At this point, External regulation impact on the asymmetric monetary policy by impact on bank credit and the Core clues of this paper is analyzing bank capital regulation which based on the monetary policy influencing on the behavior of bank credit and economic growth. This topic not only provides a new explanation for the asymmetry phenomenon of monetary policy, but also provides a new framework for monetary policy; improve the standardization of its operation, which have great practical significance, so this study will be of great significance to theoretical and practical researches in the future. Firstly, This article introduces the theory on the capital regulation related to the asymmetry effect, include:the definition of the asymmetry monetary policy in this research and practice in China; proving the existence of the credit transmission channel of monetary policy; analysis the relation among the bank’s capital regulation, the credit channel and the asymmetry effects of the monetary policy briefly.The first core clues:the cost constraints of capital added to the profit maximization equation of commercial Bank in order to static theoretical framework about bank credit behavior. the model shows that:when banks do not subject to capital constrains, the symmetry effect of the behavior of bank credit will not be affected on the different monetary policy, when banks subject to capital constrains, the symmetry effect of the behavior of bank credit will be Strengthened, but the long-term, with the bank’s risk management ability is improves and the cost of external financing is declined, the symmetry effect will not be existed. Based on the theoretical analysis, this article analysis the characteristics of bank’credit behavior between1998and2011by the panel data. The conclusion is:bank capital regulations have a contractionary effect on bank credit, capital adequacy relative to the undercapitalized will make monetary policy more smoothly, and the empirical results show that the asymmetry results exist in our country since1998.The second core clues:This study uses macro theoretical model of Bernanke and Blinder (1998), considered the traditional IS-LM model based on the equilibrium of the credit market, the model was extended to CC-LM model, considered as a basis for the capital market equilibriums extended to the KCC-LM model. Through analyzing four market equilibrium processes to separately explain three kinds of situations of Capital regulation impact on asymmetry effects. Theoretical model shows that:contractionary monetary policy makes the KCC curve and the LM curve to the left to move the distance equal to Expansionary monetary policy so that the KCC curve and the LM curve moves to the right distance, when the bank faced with capital constraints, in other words the bank is under no constraints the role of monetary policy on output is symmetrical. When banks facing capital constraints, expansionary monetary policy, changes in reserve requirement does not affect the KCC curve mobile, affects only the LM curve to the right. KCC curve and the LM curve moves to the left under the tightening monetary policy, reduced output amplitude is greater than the expansionary monetary policy, Therefore, capital subject to the constraints of the role of monetary policy on output are asymmetric. The asymmetric effect of monetary policy will be weakening with the supplement of the bank’s capital. If the regulatory authorities are to further improve the level of regulation, pressure about the supplement will be increased, the expansion space of bank credit will reduce, and the asymmetry effect of capital regulation on will appear again. Based on macro-theoretical analysis, this paper takes multivariate autoregressive to analyze the asymmetric effect empirically through the use of the macro-quarter time series between1998and2011.Conclusions and policy recommendations. Bank capital above regulatory requirements will not affect the conduction of monetary policy, the bank’s capital levels below regulatory requirements or the capital’supervision will being strengthened, the asymmetry effects of monetary policy will be exacerbated. To the conclusion, we provide three policy recommendations:fully aware of the asymmetry of monetary policy; strengthen the coordination of monetary policy and bank capital regulation; enhancing the dynamic management of capital adequacy ratio. Innovation is:many foreign scholars from the angle of capital regulation, to analysis the causes of the asymmetry effects which appear in their own country, but there is very little literature which study the combination of asymmetry of monetary policy and capital regulatory. Downside is:due to the objective limits of the adequacy and accuracy of our banking information disclosure, a number of important data, such as the capital adequacy ratio in the1998-2003cannot be obtained, so we need this data from the research of others. We ignoring some impact in order to influence the empirical research.