Research On Transmission Mechanism Of Monetary Policy-Based On Mixed Frequency TVP-FAVAR Model

With the deepening of the reform of interest rate liberalization and the gradual increase of global economic volatility,the correlation between financial markets and macroeconomics has become increasingly stronger.The continuous enhancement of the central bank's policy and interest rate system's guiding function and the growing maturity of the interest rate corridor mechanism have continuously increased the depth of financial markets and further increased the correlation between financial markets and macroeconomics.In the real economic environment,the formulation and implementation of monetary policy are affected by financial market information and macroeconomic conditions.How to analyze the transmission mechanism of monetary policy based on financial market data is a practical problem that needs to be solved urgently.To this end,based on mixed frequency data information such as quarterly GDP and monthly economic indicators,this paper proposes a mixed frequency time varying factor augmented vector autoregressive(MF-TVP-FAVAR)model.The traditional TVP-FAVAR model is mainly based on co-frequency data for analysis.However,the release frequency of macroeconomic data is very different from that of financial market data,and mixed-frequency data is widely available in actual economic activities.If the traditional co-frequency data is used to maintain the consistency of data frequency,important high-frequency data information will be lost.These high-frequency data with rich information are of great significance for accurately revealing short-term monetary policy behavior and fine-tuning monetary policy in a timely manner.Therefore,this article is making effective use of the mixed data information to construct a mixed-frequency TVP-FAVAR model and further analyze the dynamic mechanism of monetary policy behavior.Based on the construction of the MF-TVP-FAVAR model,this paper studies the transmission mechanism of China's monetary policy in conjunction with financial data,and then discusses the related issues of time-varying transmission mechanism.First,review the traditional literature on monetary policy transmission through the literature review,summarize the traditional TVP-FAVAR research methods and their shortcomings,and put forward the research arguments of this article in combination with mixed data to rationally build an empirical model.Secondly,build a mixed frequency time-varying augmented vector autoregressive model to explore the time-varying nature of China's monetary policy transmission mechanism.Finally,the macroeconomic indicators and financial market indicators of different frequencies are selected,the parameters of the mixed frequency model are estimated,and empirical discussions are carried out to form the basic conclusions of this paper.In terms of empirical research,this paper mainly does the following three aspects:comparing the financial condition index,macroeconomic prosperity index,and GDP to determine whether the financial condition index extracted by the model has leading characteristics and effects on monetary policy;estimating variable response parameters,discussing the time-varying characteristics and effectiveness of credit transmission channels and interest rate transmission channels at higher data observation frequencies,thereby providing a more scientific decision basis for monetary authorities to fine-tune monetary policy in a timely manner;researching economic cycle impact of monetary policy transmission mechanism,discuss and compare the transmission effect of different monetary policies in the economic boom and economic downturn;analyzing the relationship between monetary policy and financial markets with the impulse response function of the financial condition index.The research results show that:First,the Financial Condition Index(FCI)extracted from the financial market data based on the MF-TVP-FAVAR model can better characterize the macroeconomic trends and provide forward-looking information for the formulation of monetary policy.Second,whether it is price-based or quantity-based monetary policy transmission,the mixed TVP-FAVAR model can capture the high-frequency time-varying characteristics of monetary policy transmission.Compared with the money supply,the effect of the interest rate transmission mechanism on output is lagging as it is affected by the term structure.With the reform of interest rate liberalization,the interest rate transmission mechanism has become smoother,while the credit transmission mechanism has become increasingly blocked due to problems such as fiscal policy mix.Thirdly,the transmission mechanism of monetary policy is affected by the economic cycle.Both the price-based and quantitative-based transmission mechanisms would be weaken by the effect of the macroeconomic downturn,but quantitative monetary policy is more susceptible to changes in the economic cycle.Finally,the response of monetary policy to FCI shocks is time-varying,indicating that China's monetary policy transmission mechanism has been impacted by information from financial markets.Financial market information should be fully considered when formulating monetary policy.With the rapid development of various types of financial innovation,financial markets will play a more important role in facilitating monetary policy transmission.The ongoing interest rate marketization reform will gradually increase the efficiency and importance of the interest rate transmission mechanism.At the same time,the financing structure and credit structure should be optimized,and fiscal policies should be coordinated to further unblock China's monetary credit transmission mechanism.