Study On The Effects Of The Investment Of Local Governments On Achievement Of Monetary Policy Objectives

Monetary policy is an important measure of the central bank to control the macro-economic environment. After the implementation of monetary policy, the achievement of the expected objectives of monetary policy is not only depends on the efficient transmission mechanism, but also requires the active participation and cooperation of local governments, commercial banks, community enterprises, and consumers and other participates in the economic activities. But the reality is that some of the participates will behave on the pursuit of maximizing their own interests. The result of this behavior may cause that the expected monetary policy goals can’t achieve, even contrary, making the monetary policy less efficient. In this paper, the local governments are the body for the study, and this paper is to analyze the impact of the investment of the local governments to the monetary policy objectives. The study of this paper has important theoretical and practical significance to the effective transmission of monetary policy.This paper firstly sort out the relevant literatures of domestic and overseas. And is divided into several main aspects: the functions of the government, the relationship between the investment of the local governments and the development of the economic, the relationship between the investment of the local governments and the effectiveness of monetary policy. Secondly, this paper analyze the reasons of the investment impulse of local governments based on the theories and the reality of our own country. Thirdly, this paper analyze the actions of local governments responding to the monetary policy signals and the impact on the monetary policy objectives such as the price level and the total output by the monetary policy transmission mechanism. Lastly, the paper selects reasonable economic data and tests the hypothesis by creating VAR model and mediating effect analysis.The following conclusions are obtained after the study: The adjustments of the monetary policy can cause changes in the scale of local governments’ investment. Different monetary policy tools have different effects on the local governments’ investment, and the descending order is money supply, interest rates and the scale of bank credit. The investment of the local governments have lower sensitivity to the expansionary monetary policy compared the tight monetary policy. The study shows that the investment of local governments have perennial growth, and brings not only an increase in the total output but also causes inflationary. At the end of this paper several policy suggestions have been made to guide the scientific development of the regional economy of local governments, such as the optimization of fiscal decentralization, improve the performance appraisal system and the structure of fiscal expenditure, strengthen the supervision of local governments and their officials.