The Impact Of Macro-prudential Policy On Monetary Policy

Monetary policy is an important measure to regulate the economy and achieve specific economic goals. In recent years, as the development of China’s economic and reform of the financial system, the shortcomings of traditional monetary policy in regulation of China’s economic has become increasingly evident. Traditional monetary policy focuses on the stability of price, and is lack of effective regulation of systemic risk caused by credit expansion and asset price inflation. After the financial crisis, the international financial community began to build macro-prudential regulatory framework and proposed a series of macro-prudential regulatory measures. Basel Banking Committee issued "Basel Ⅲ" to strengthen the capital requirements under the macro-prudential regulatory framework, improve the capital adequacy ratio, and recommends that States establish countercyclical capital buffer regime. The cooperation of macro-prudential policy and monetary policy can enhance the effectiveness of monetary policy, prevent systemic financial crisis, maintain financial stability and promote economic development.The transmission mechanism of monetary policy determines the effectiveness of monetary policy. The article discusses the impact of macro-prudential supervision to monetary policy, focusing on the transmission mechanism of monetary policy. The article analyzes the impact of counter-cyclical capital buffer, the capital adequacy ratio and other macro-prudential tools on the credit channel of monetary policy, and the impact of ratio of loan to value (LTV) and loan to income ratio (LTI) on assets price channel of monetary policy. Basing on the theoretical analysis, the article calculates the countercyclical capital buffers with macroeconomic data, and establish VAR model with countercyclical capital buffers, a capital adequacy ratio M2 growth ratio, credit growth ratio and GDP growth ratio. The results of the model confirmed that the increase of the capital adequacy ratio of the countercyclical capital buffer can reduce the size of credit, then reduce GDP growth ratio. There is a lag in the impact of counter-cyclical capital buffer and capital adequacy ratio to credit growth ratio and GDP growth ratio. The lag length is three. Therefore, when regulating and controlling the macroeconomic, we should pay attention to possible effects of macro-prudential on monetary policy, and strengthen coordination of macro-prudential supervision and monetary policy in practice.