The Influence Of Financial Disintermediation On The Effectiveness Of China’s Monetary Policy Transmission Channel

Financial disintermediation means when financial system is regulated, funds will flows to demand side directly, bypassing the commercial banking system. This phenomenon appeared in the 1960s of the United States firstly. Since the reform and opening up, China’s financial system has made great development. Especially in the last decade, the importance of direct financing market has been improved a lot. On the other hand, with the new generation of high-tech, internet banking has been developing rapidly. In addition, since 1996, China’s interest rate market-oriented reform has promoted two decades. Financial disintermediation phenomenon gradually deepen in China, similar to the United States and other developed countries.The appearance of financial disintermediation will impact the commercial banking system. Furtherly, transmission mechanism of monetary policy will be influenced. Compared with the United States and other developed countries, reasons of financial disintermediation occurred, specific performance and the status have shown some unique features. On the other hand, economic development stage and the degree of financial disintermediation of the different regions are not on the same level. Therefore, it is practically significant to research the influence of financial disintermediation on China’s transmission mechanism of monetary policy.This paper’s thesis is to research the influence of financial disintermediation on China’s transmission mechanism of monetary policy, based on eastern, central and western regions. Quarterly data related to China’s various provinces, municipalities and autonomous regions is used. Firstly, this paper inspects the provincial administrative data, using ADF unit root test and JJ cointegration test. Secondly, two PVAR model are established respectively, based on the whole country, eastern, central and western regions. One model contains financial disintermediation index, the other does not. Thirdly, the influence of financial disintermediation on China’s transmission mechanism of monetary policy is researched, by impulse response function and variance decomposition method. The result is:in the eastern region, financial disintermediation has weakened the credit channel of monetary policy conduction effect, and the effect of interest rate conduction channel has been strengthened in the short term; In the central region, financial disintermediation has not impacted the effect of bank lending channel and interest rate channel; In the western region, financial disintermediation has weakened the validity of the bank lending channel of monetary policy, but enhanced the effect of interest rate channel, however, the transmission of monetary policy has a certain time lag. Finally, on the basis of the conclusions of this paper, some recommendations are put forward.