The Analyze Of Aggregate Financing To The Real Economy As A Monetary Policy Intermediate Target

As an important intermediate target of monetary policy, China's money supply monitors the relationship between banks and the real economy. However, with China's economic development, the financial market presents a new situation, which includes diversified structure and many kinds of financial instruments. The relationship between financial institutions and the real economy is not just between the bank and economic entities. How to find a more suitable intermediate target of monetary policy is very important in the new environment. After announced by the central bank, in 2010, the Aggregate Financing to the Real Economy(AFRE) attracting many scholars' attention, due to the AFRE covers many types of financial instruments and financial markets. The AFRE refers to total funds obtained by the real economy from the financial system. It fully reflects the total funds of financial system's support to the real economy and the relationship between financial and economic. It contains two parts which are the stock of AFRE stock and the increment of AFRE.In this paper, we focus on the AFRE. We use both theoretically and empirically way to analyze whether the AFRE is a suitable variable as the intermediate target of monetary policy and how the change of monetary policy affects the AFRE. In theoretical part, this paper, on the one hand, brings the AFRE into the monetary policy transmission mechanism for analysis. We find that the AFRE owns a great measurability, controllability and relativity. On the other hand, this paper also analyze the impact of monetary policy's change on AFRE. We find that the current change of AFRE related to the total utility of former monetary policy, due to the time lag of monetary policy. In the empirical part, with the 2004 to 2014 quarterly data, this paper uses FAVAR(FactorAugment VAR) model to analyze whether the AFRE is a suitable variable as the intermediate target of monetary policy and how the change of monetary policy affects the AFRE respectively. In order to handle the first question, this paper focuses on the controllability and relativity of AFRE. We find out that the AFRE is actually a better variable as the intermediate target of monetary policy, compared to M2. At the same time, we also discover that we should treat the stock of AFRE and the increment of AFRE without biases, due to they both have their own strengths and weaknesses. As for the impact of monetary policy's transformation, this paper focuses on the scalar and price type of monetary policy. We find that the total utility of former monetary policy can actually affects the current AFRE. This affection shows by the different performance between the stock of AFRE and the increment of AFRE, under the impact of monetary policy. In this case, the central bank need to treat the stock and the increment of AFRE differently, during the period of monetary policy transmission.