Monetary Policy Choice And Effectiveness During Financial Crisis Period In China And South Korea

The financial crisis in2008has been a few years, but the impact of the crisis is far tocompletely eliminate. South Korea’s economy remains sluggish and GDP growth is slow;while maintaining the high rate of economic growth, China’s financial situation is still grim.Especially with the deepening and accelerating of financial reform in China since2012, weshould draw more attention to potential financial risk and possible crisis.At present, monetary policy has become one of the important means and tools to regulatethe economy by all countries in the world. But there are still differences between differentcurrency authority and central bank in specific selection, implementation of monetary policyand the implementation effect etc. And this difference exists not only between China and USAmature market countries, but also in the emerging market countries, South Korea. Therefore,the comparison between China and Korea about central bank’s monetary policy is moretargeted.First，this paper makes systematic and comparative analysis for central bank’s monetarypolicy system in China and Korea, and we find that the two country’s monetary policy systemis of similar structure from a comparative view, however, they are obviously different in thedevelopment stage of the specific arrangements. South Korea’s policy goal is single andspecific, and its maneuverability is strong. China monetary policy goals are more macroscopicand fuzzy, conduction mechanism is also too narrow. Second, discussing specific selectionand implementation of the central bank monetary policy tools of China and Korea in thefinancial crisis period, we have found that Korea pays more attention to use the traditional andinnovative tools, and gave priority to price type tool, which plays a positive effect andeffectively reduces the negative effect. China has relied on the use of quantitative policy toolsand lack of innovation policy tools, leading to long-term inflation risk exist. After that, thesimple theory analysis and the VAR empirical analysis on the central bank monetary policy’seffectiveness, found that in order to cope with the financial crisis, the loose monetary policyadopted by the two countries are positive and effective. China’s monetary policy tool alone isinvalid and various measures to comprehensive use is effective, but there is obvious hysteresisand the negative effect of inflation or other problems in the long term. South Korea’s interest rate policy is effective by itself, the overall effect is also better than China significantly. Butthe impact on domestic CPI is not obvious; it has to do with the country’s implementation ofstrict inflation targeting. Finally, combined with the experience of Korea, this paper proposessome policies and measures to improve China’s monetary policy.