Nonlinear Effects Of Chinese Monetary Policy On Real Economy And Fictitious Economy

With the domestic as well as the international economic situations getting complicated, China adjusted its monetary policy frequently for getting with the changing economic environment and achieving its macro economy targets. For example, during the time of damaging inflation in 90’s of last century and twice international finance crisis, Chinese government adjusted monetary policy promptly to solve economic problems. However, the results showed that the effects of monetary policy always deviated their original goals and were lacking in stability and predictability. Meanwhile, the nonlinear characteristics were obvious, making it difficult that predicting the monetary policy effect before its implement. At the same time, the fictitious economy’s development made it being an indispensable part of whole economic structure.Especially since 70’s last century, the finance creation has gained great progress, according with the loosening of finance surveillance. Many kinds of new finance tools make the finance market more active. Though the great improvement of fictitious economy brings endless energy to the world, it makes the finance industry more uncertain due to the fiction and high risk of itself. As for the monetary policy, the prompt development of fictitious economy leads to the variety of transmission channel, the complex of transmission procedure and the uncertainty of monetary effects.With the reform and open going deep, the stock and bond market have got remarkable development in China. They changed the macro economy environment strikingly. Both the fictitious economy’s effects on monetary policy and its close relationship with real economy challenge our monetary policy’s implementation and effect. So it is necessary to understand how monetary policy affects fictitious economy for cognizing the whole effects of monetary policy. Therefore, we should answer these questions that how monetary policy affecting fictitious economy? Is it the same between real and fictitious economy? Do the policy effects have nonlinear features? Which monetary policy tool can get better result?In this paper, we use the Smooth Transition Aggressive Regression (STAR) Model to study the nonlinear effects of monetary policy on real and fictitious economy. We select the real GDP and stock market index to measure real and fictitious economy respectively. Furthermore, we analyze the different forms of expression when using different policy tools by nonlinear general impulse respond function. The consequences support the hypothesis that monetary policy has nonlinear effects on both real and fictitious economy, but the expression forms are not the same. When using M1, monetary policy has nonlinear effects on both real economy and fictitious economy directly. And the nonlinear effects can be visible on policy direction, policy scale and external economic environment for fictitious economy. But for real economy, the nonlinear effects can’t be caught sight in these three aspects. When using real rate as monetary policy tool, monetary policy bring nonlinear effects to real and fictitious economy by establishing the nonlinear relationship between the temporary economy and other factors such as the economy before. Specifically, for real economy, the real rate’s nonlinear effects can be seen in different external economy environments. For fictitious economy, the nonlinear effects don’t express on policy direction, scale and external environment.The innovation of this paper lies in two aspects, studying objects and studying methods. On the former aspect, I consider the effects and characteristics of monetary policy on both real economy and fictitious economy. The fictitious economy is studied as an independent economy form, not the subsidiary to real economy. On the latter aspect, I use the STAR model and general impulse response function to analyze the nonlinear effects. The STAR model can depict the nonlinearity form specifically by transfer function and exhibit the nonlinear track of monetary policy effect with graphs. Also the general impulse response function can record the differences in effects of monetary policy between separate monetary directions, scales and external economic environments. These comparisons can tell us where the nonlinearity come from and how it works. Meanwhile, there are some shortages in this paper. For example, I select the stock market index as the measurement of fictitious economy without considering the huge bond market and other fictitious capital markets. So the fictitious economy in this paper is limited and not comprehensive. Therefore, I want to establish a comprehensive fictitious market index containing stock market, bond market and other fictitious markets in the sequent study, so it can measure the fictitious economy better.