Study On The Effectiveness Of China's Monetary Policy Under Global Financial Crisis

In September 2008, US subprime mortgage crisis evolved to be a global financial crisis. In response to the crisis, countries have taken various measures in order to minimize the impacts that they might suffer and recover as soon as possible. The monetary policy is one of the main means used by countries to cope with the crisis. China also took a moderately loose monetary policy to resist the impacts of the financial crisis on its domestic economy. Since then, China's economy has significantly gained momentum, despite the later emergence of inflationary trends. For this, the Chinese government adjusted its moderately loose monetary policy to a prudent monetary policy. In the three years between 2008 and 2011, was China's monetary policy effective? The paper will focus on this question. First of all, the paper introduces monetary policy, monetary policy tools and monetary policy transmission mechanism. Then, it describes the differences between monetary policy tools and monetary policy transmission mechanism in China as well as the implementation of China's fiscal policy after the financial crisis. Finally, the paper evaluates the effectiveness of China's monetary policy in terms of GDP growth and CPI trend. The study reveals that the moderately loose monetary policy used after the financial crisis proved effective and played a catalytic role in China's economic development; later, when China moved to steady economic development and inflationary trends began to appear owing to the increased pressure of RMB appreciation, the prudent monetary policy introduced by the Chinese government also had some effects. However, due to the limitations of monetary policy and the complexity of the economic environment, the monetary policy adopted during this period didn't achieve very satisfactory results.