The Credit Channel Of Monetary Policy In China Under An Open Circumstance

Using an FAVAR(Factor-Augmented Vector Autoregression)model,this paper analyzes the effectiveness of the credit channel of monetary policy transmission in China under an open circumstance from a term structure perspective.We divide the total loans into short-term loans and mid&long-term loans to figure out their effects on the monetary policy transmission mechanism separately.The empirical research is conducted using data from January 2000 to July 2017 to examine the results of theoretical analysis.Specifically,this paper reviews the literature on the monetary policy transmission channel and its effectiveness first,summarizes the new characteristics of monetary policy transmission mechanism in an open economy,and sorts out relevant research from a term structure perspective.We also draw a profile of the credit term structure in China using monetary and credit data,distinguish between the functions of short-term loans and medium&long-term loans in China's economic development accordingly,and analyze the different effects of the two components on the monetary policy transmission in China.Then the FAVAR model introduced by Bernanke et al.(2005)is conducted to analyze the effectiveness of the credit channel of monetary policy transmission in China under an open circumstance from a term structure perspective empirically,using 54 macroeconomic indicators from January 2000 to July 2017.We find that(1)the effects of mid&long-term loans last longer than those of short-term loans,which is consistent with their duration;(2)short-term loan growth can boost economic growth in the short term,but it will have a negative effect in the future,meanwhile the impact of mid&long-term loans on the economic growth,while fluctuating in the short term,remains positive and has minimal negative effects in the future;(3)short-term loans push up price from the downstream CPI to the upstream PPI,whereas mid&long-term loans function in the opposite direction.The policy implications of this study are therefore derived:(1)the monetary authority should focus on the control of both the total amount and the structure of credit;(2)the problem of term mismatching problem in the balance sheets of commercial banks and non-financial enterprises should be paid attention;(3)the mid&long-term loans play an important role in the supply-side structural reform;(4)reasonable guidance of the behavior and expectation of microeconomic subject is preferred,so as to adjust the term structure of money and credit.In conclusion,only if both the total amount and the structure of credit remain appropriate,can the monetary policy be effective.