The Study Of Unconventional Monetary Policy On The Social Welfare Loss

The US subprime mortgage crisis has caused the continuous turmoil of global economy. Lots of countries have faced a series of severe challenges, such as the failure of a large number of financial institutions, rising unemployment. Meanwhile, it is difficult for conventional monetary policy to play a role because of the "liquidity trap". These problems force many developed countries begin to implement unconventional monetary policy which is focus on adjusting the size and structure of the central bank balance sheet. Social welfare level is a good measurable indicator. It is a new method to measure the social cost of unconventional monetary policy from the perspective of social welfare loss. Therefore, studying the impact of unconventional monetary policy on social welfare loss has theoretical and practical significance. It will provide certain reference to analyze and evaluate the performance of domestic monetary policy.Firstly, this article expounds the theoretical basis of the unconventional monetary policy and the social welfare as well as their connection. At the same time, it analyzes the process of implementing unconventional monetary policy in the United States, the European Union, Britain and Japan, founding that the GDP of every country is increasing and the volatility of inflation is decreasing. Secondly, this paper applies a weighted average of the variance of the inflation bias and output gap to establish the welfare loss function of central bank. And, it determines the values of three parameters:the coefficient of inflation bias, the rate of inflation and the estimation method of potential output. Thirdly, the article selects the quarterly data of real GDP and inflation rate from two periods. It calculates the social welfare loss in four developed countries through the social welfare loss function separately and it analyzes the result of social welfare loss comparatively. Findings suggest that unconventional monetary policy has exacerbated the social welfare in four countries to varying degrees. The welfare loss means that unconventional monetary policy has increased its "implementation cost", and decreased the "policy benefits" of central bank with a view to maintaining macroeconomic stability and social welfare. Lastly, the paper puts forward the four policy suggestions for China:analyze unconventional monetary policy from different point of view; treat the social welfare as a tool of measuring the performance of monetary policy; to speed up the economic reform and the transformation; and to accelerate the establishment of a unique social welfare loss function.