Research On The Effects Of The Unconventional Monetary Policy Transmission Channels:

As the key issue of the monetary policy, the effects of monetary policy transmission – on one hand reflect the implementation approach of monetary policies, while on the other hand unveil the extent that monetary policy imposes on the financial sector and the real economy- and thus are of great significance to the monetary authorities for carrying out the economic regulations. During financial and economic crisis it is unconventional monetary policies that play the major role. Faced with the zero bound on the interest rate and the failure of the transmission of the conventional monetary policy, the unconventional monetary policy transmission channels undertake the responsibility for credit revival and economic recovery. Therefore the research on the effects of unconventional monetary policy transmission is important to explore the effectiveness of monetary policies implementation in the course of economic crisis. It also helps to refine the theory of monetary policy transmission.This article firstly clarifies the connotation of three transmission channels of unconventional monetary policy. Secondly, it studies the effects of the three channels through two perspectives —— that is, the normative analysis and the empirical research, both based on the Federal Reserve’s practices in financial crisis. In the nominative analysis, this article summarizes both conventional and unconventional monetary policies that the Fed implemented to deal with financial crisis, and then analyzes the transmission process and the effects of these policies from the perspectives of financial sector and the real economy. It is found out that conventional policy is incapable to achieve the policy objectives because its transmission channels are blocked during crisis. On the contrary, the unconventional monetary policy has stimulating effects on both financial sector and the real economy. In the empirical research, vector auto regression model(VAR), impulse response function and variance decomposition are applied to test the effects of the unconventional policy transmission channels. Results of the research prove the effects that unconventional monetary policy transmission has on the credit revival and the economy recovery. Wherein commitment effect helps achieve policy objectives mostly by the means of expectation management; while balance-sheet expanding effect and composition effect by providing liquidity to the financial system, facilitates the recovery of the real economy in an indirect way. Thirdly, according to research findings, this article reaches the conclusion and presents some enlightenment on the unconventional monetary policy transmission and crisis management.