Rates Volatility Affect The Outcome Of China’s Monetary Policy Transmission Mechanism

In 2008, the US subprime mortgage crisis led to the global financial crisis. The financial crisis has changed the monetary policy in China.Chinese monetary policy began to change from Quantitative Monetary Policy to Price-based Monetary Policy. Micro-regulation, Micro-stimulation and Regulation(appropriate time,suitable efforts) became China’s Normal Policy. During 2013, the bank occurred "money shortage". Stock and bond markets suffered from the impact of shibor interest rate. Shibor interest rate fluctuations began occupying an important position of monetary transmission channels. However, there are many kinds of interest rates on the market. What kind of interest rate can represent the dynamic display of China’s monetary policy? The question need to be solved. At the same time, the emergence of new monetary policy tools such as SLO, SLF and PSL, etc. make our monetary policy framework into the “interest rate corridor”. Money market interest rates became People’s Bank of China of the target of the operation. The central bank will directly control money market rates. Under the influence of fluctuations in interest rates, the effectiveness of monetary policy transmission becomes a common concern.First, the article summarizes the theory of monetary policy transmission mechanism and the latest theory. These results can contribute to the development of the theory of China’s monetary policy transmission mechanism. Then, Combined with the actual, We have analyzed monetary policy through the intermediate target of monetary policy, the monetary policy and the ultimate goal of monetary policy tools. We conclude that China’s monetary policy there is a new change---Monetary policy framework multi-target and multi-tools 、 Quantity to price-based monetary policy framework changing、Supporting a stable exchange rate pressure is greater than cutting the interest rate benefits. By analyzing the results of summing up our monetary framework, we believe that rate regulation has become the mainstream of China’s monetary policy. Then, We tested our interest rate system by stability test, correlation test and complete the basic test to test market interest rates. At same time, we creating EGARCH model test testability and controllability. On this basis, we found a ideal monitor monetary policy. At last, the introduction of interest rate volatility build two VAR mode. In the background of interest rate volatility, we examine the impact the effectiveness of China’s monetary policy transmission mechanism. Finally we got result that the effectiveness of monetary policy transmission is weakened, in the context of interest rate volatility. Monetary policy transmission channels will have a greater impact of monetary policy. The effect of monetary policy implementation is not satisfactory.In last part of the article, based on the conclusions of the article, we offer some suggestions. The central bank should stabilize interest rate volatility, correctly guide interest rate fluctuations, stabilize market expectations. We should understand that regulation is the heart of the regulation essentially. The regulation should establish a scientific concept. At the same time, this result shows that The Launch of Interest Rate Corridor significance.