Research On The Dynamic Effectiveness Of China's Monetary Policy Based On TVP-FAVAR

With the establishment and perfection of the socialist market economic system,financial operation has more and more influence on the economic operation.While,the new monetary policy often cannot achieve predetermined policy goals,forming the inefficiency of monetary policy.In addition,China is in the developing state of the China's New Normal,facing the situation of economic slowdown and economic transformation.China's overall economic structure as well as macroeconomic regulation face rebuilding,which take new challenges to China's monetary policy framework and the transformation for the use of policy instruments,Therefore,taking the economic system reform and the social system reform into account,analyzing the characteristics and tendency of China's monetary policy dynamic effectiveness,which is of great importance for the monetary authorities to improve China's monetary policy framework and use monetary policy tools effectively to guide the development of the China's New Normal.This paper uses the relevant macroeconomic data sets from July 2003 to August 2017 to study the dynamic effectiveness of China's monetary policy based on the TVP-FAVAR model.Innovation point of this article is that,China's exchange rate regime reform and interest rate liberalization reform,make the relationship between target variables and monetary policy variables is change over time.Using the TVP-FAVAR model can portray the time-varying relationship between variables,avoiding using a partial variables of incomplete information,to improve the defects of traditional methods.Besides,considering the effectiveness of monetary policy from two aspects,price-based and quantity-based,which can make the policy formulation more targeted.Based on the results of the theoretical research and empirical analysis,we can know that:(1)after exchange rate reform,price-based monetary policy tools display a sign of the price puzzle,which disappear after the outbreak of the global financial crisis and the European debt crisis.And the effectiveness of price-based monetary policy tools have increased after the European debt crisis;(2)the positive impact of the quantitaty-based monetary policy leads to the positive and negative effect on the growth rate of the consumer price index and the industrial added value,and its regulation effect on inflation is greater than that of the output level,and its regulation on price is time-delay,and the time lag of the price regulation is longer compared to the price-based monetary policy;(3)through studying the dynamic effect of the price-based monetary policy and the quantity-based monetary policy,it can be found that as the time goes by and the economic development,the control effect of the quantity-based monetary policy on the macro-economy is obviously weaker than that on the price-based monetary policy,which is also in line with the China's current monetary policy of "from the quantity to the price".According to the empirical results,at the same time,combined with the background of the current interest rate marketization,this paper argues that the monetary policy transmission channel whether unobstructed is the key to transition.Therefore,combined with empirical research results this paper puts forward three suggestions:first,focus on interest rates and improve the interest rate corridor.Second,strengthen the transmission efficiency of policy interest rate and further develop the bond market.Third,we should implement a prudent monetary policy,maintain the basic stability of the RMB exchange rate at a reasonable and balanced level,and control domestic inflation,so as to ensure the stability of domestic purchasing power.Fourth,it is necessary to enrich the central bank monetary policy tools,comprehensive use of monetary policy tools to strengthen the monetary policy tools synergy,strengthen and improve macroeconomic prudent management,optimize the policy mix,to achieve reasonable growth of money and credit and social financing scale,improve the effectiveness of monetary policy.