A Study On The Effectiveness Of China's Monetary Policy:A Staged Intermediate Target Perspective

Since 1984,the People's Bank of China independently exercised function,monetary policy has been used to regulate the economy and deal with the crisis.China's economy has made great achievements and has overcome many challenges in the past three decades.Now China faces the new normal and new challenges of economic development.Through the study of the effectiveness of monetary policy,it can provide reference for future policy making which can better serve the development and transformation of China's economy.This paper studies the effectiveness of monetary policy from two aspects:theoretical and empirical research.On the theoretical side,the neutrality and non-neutrality of money,the exogeneity and endogeneity,and transmission of money supply will be discussed.China's currency is non-neutral,exogenous and its transmission depends mainly on credit channels.In the aspect of empirical analysis,the quarterly data of 1992-2016 are selected,and the monetary policy variables are divided into the monetary policy intermediation objectives.The monetary policy variables are combined with the actual output and the price variables.They are analyzed with Cointegration Test,Granger non-causality test,impulse response analysis and variance decomposition test.The empirical results show that the monetary policy is effective and the effect of the monetary quantity index is greater than the interest rate index.But as time goes on,the effect of monetary policy is declining.According to the theoretical analysis and the results of empirical test,it can be concluded that China's monetary policy has long been effective,but the effect is weakening.Monetary policy is mainly through the credit channel for transmission,the interest rate channel transmission effect continues to improve.Based on the results,it is suggested that future monetary policy formulation should take into account the ultimate objectives and improve the interest rate market,capital market and foreign exchange market in order to strengthen the monetary transmission effect of other channels.