The Impact Of Commercial Bank’s Financial Product Innovation On Conductional Effect Of Monetary Policy

Along with the reform and the development of financial industry in China, the competition of commercial Banks in the business management and product innovation is increasing. The profit space of banks relying on deposits and loans is reducing. The Internet financial occupies the commercial banks’ market space. These encourage commercial banks to find new profit growth point. The innovation of financial products as the tools of banks to increase profits and transfer risk inject new vitality to the development of modern commercial banks. At the same time, it also puts forward new challenges to monetary policy, which gradually weakens the effect of monetary policy.The central bank needs to change monetary policy to some extent in order to adapt to the new situation.This paper uses the empirical analysis method, with the content of the theory of financial products innovation, to do an analysis of the meanings and motivations of financial product innovation. On this basis, it discusses the present situation and characteristics of our country’s banking financial products in-depth. Next, theoretical analysis was carried out on the effect of the financial product innovation on monetary policy transmission, which is respectively from the perspective of money supply, money demand, intermediate targets, instruments and transmission mechanism of monetary policy. Later, on the basis of above theoretical and present situation analysis, it does an empirical analysis of the effect of the financial product innovation on monetary policy conduction. It finds that the relationship between financial product innovation and the monetary policy transmission effect by constructing the VAR vector autoregressive model to do an analysis of financial data using a variety of measurement methods of product innovation including single root ADF test, impulse response function and variance decomposition analysis, etc.The empirical analysis result shows that the financial product innovation and intermediate target of monetary policy such as the level of the money supply have the long-term stable equilibrium relationship. Each unit of a change of financial products innovation would have a long-term impact on number of loans, price level, the money supply and economic growth, which would tend to be stable gradually in the long run.On the one hand, the financial product innovation helps to achieve the ultimate goal of central bank’s monetary policy playing a role of money adjustment. On the other hand,to a certain extent, the financial product innovation weakens the transmission effect of monetary policy reducing the function of the money adjustment. On the basis of the results of the empirical analysis, this paper gives the relevant policy suggestions. One is constructing multivariate intermediary target. The other one is enhancing the design and use of the policy tools of macro-prudential management in order to give play to the effect of monetary policy transmission and improve regulation and control ability of the monetary policy under the background of the financial product innovation.