Research On Dynamic Effectiveness Of China's Price-based Monetary Policy

Since the Chinese economy entered the new normal,the economic environment has undergone tremendous changes.At the same time,the rise of shadow banking and financial disintermediation has made it difficult for quantitative monetary policy to exert its regulatory role.In order to adapt to the new normal of the economy,China's monetary authorities are advancing the monetary policy from quantitative control to price-based regulation in an orderly manner.The key to the transformation of monetary policy is whether the transmission mechanism of monetary policy is smooth,and whether monetary policy can be effectively regulated.Therefore,this paper is very practical to analyze the effectiveness of price-based monetary policy from the perspective of theory and evidence.This paper takes price-based monetary policy as the main research object.Firstly,it studies the transmission mechanism of price-based monetary policy and the measure of its effectiveness from the perspective of theoretical analysis.Secondly,the macroscopic part from October 2006 to November 2018 is selected in the empirical part.The economic data set uses the factor augmented vector autoregressive model with time-varying parameters(TVP-FAVAR),and analyzes the effectiveness of China's price-based monetary policy from two aspects: interest rate channel and exchange rate channel.Finally,we found that:(1)Before the Chinese economy entered the “new normal” in 2014,there was a significant “price puzzle” phenomenon in the price-based monetary policy of interest rate channels.After,the “price puzzle” phenomenon disappeared obviously.(2)Compared with the price level,interest rate monetary policy tools have a better effect on the regulation of output levels.And in general,interest rate monetary policy can play a positive role in regulating the main economic variables such as fixed asset investment,real estate investment,import and export,loans,the total market value of the Shanghai Stock Exchange,the Shanghai Composite Index and the real effective exchange rate of the RMB.(3)The incomplete marketization of the exchange rate system limits the transmission of monetary policy in exchange rate channels.From the empirical results,the effect of exchange rate changes on inflation is very insignificant.and it is considered that the effect of exchange rate changes on price levels is invalid.(4)After the “811” exchange rate reform,the effect of the exchange rate on the output level has been strengthened,which was accompanied by serious lag.In general,the exchange rate monetary policy has the most significant effect on the regulation of the total retail sales of social consumer goods,import and export volume,the total market value of the Shanghai Stock Exchange,the Shanghai Composite Index and the real effective exchange rate of the RMB.(5)In general,monetary policy based on interest rate channels have a greater impact on output levels and inflation levels than monetary policy instruments in exchange rate channels.At the same time,it can be found that the effect of interest rate and exchange rate on output level is accompanied by a certain time lag,and the time lag of exchange rate policy instruments is significantly greater than that of interest rate policy instruments.Finally,combined with the empirical results,this paper gives relevant policy recommendations for the monetary authorities in China to formulate price-based monetary policies and how to effectively enhance their policy effectiveness.