Local Government Infrastructure Investment Preference And Monetary Policy Effect

Since global financial crisis in 2008,China has experienced many expansionary monetary policies under the downward pressure of the economy.However,we have noticed that the rebound in GDP growth rate brought about by the growth of money supply is gradually worsening,in order words,the monetary policy effect in order to stimulates economy is constantly weakening.The establishment of the theoretical dual sector model proposes that liquidity brought by monetary expansion flows into the distortion sector,the infrastructure sector,which crowds out investment in manufacturing sector and other real economy sectors.And the empirical model of structural vector autoregressive(SVAR)shows that infrastructure investment weakens stimulus effect of monetary policy on economy,and the the driving force of government for infrastructure investment to boost the economy has been greatly enhanced when the economy goes down,and liquidity brought by monetary policy has indeed entered infrastructure sector.Simultaneously,according to the differences of local governments' investment preferences,this paper establishes the panel vector autoregressive(PVAR)model and concludes that the credit growth in the middle marketization provinces is more effective,and areas with moderate marketization have more momentum and financial resources to invest in infrastructure.Finally,based on the above conclusions,suggestions are made that the central monetary policy should be prudent and stable,and local governments should promote further reforms to help improve the structural problems of China's economy.