Research On The Preference And Effect Of The Central Bank’s Monetary Policy Regulation From The Perspective Of Financial Stability

The traditional monetary policy mainly focuses on inflation and output for adjustment.However,during the outbreak of the previous financial crises,the sharp fluctuations in asset prices have led to the concentration of financial risks,which makes the central bank have to consider the huge impact of the changes in the financial market on the macro economy in the implementation of monetary policy.At present,under the background of the superposition of uncertainty factors and risks,and the threat to financial stability,the monetary policy of the central bank should play a role as an important economic means for the country to conduct macro-control and guide market expectations.Based on this,it is necessary to rethink and evaluate China’s monetary policy,incorporate the financial stability factor into the category of monetary policy with interest rate as the intermediary index,understand the reasons and mechanisms behind the implementation of monetary policy more deeply,analyze the changes in the regulatory preferences and effects of monetary policy in different development stages and periods,and explore how monetary policy can balance between stable growth,stable prices and risk prevention.The main research idea of this paper is to construct the financial stability index and incorporate it into the monetary policy with the Taylor rule as the main framework,and analyze the regulatory preference and effect of monetary policy on output,inflation and financial stability.First of all,based on the connotation of financial stability,select financial stability indicators with the ability to play their functions and resist shocks in the financial markets of all dimensions,use TVP-FAVAR model to construct the financial stability index,and analyze the financial stability of China at all stages;Secondly,the financial stability index is included in the price-based monetary policy system with interest rate as the intermediary target,and the TVP-VAR model and the generalized impulse response function are used to analyze how the interest rate will react to the impact of output gap,inflation and financial stability,thus the regulatory preference of the central bank’s monetary policy can be analyzed;Thirdly,the paper analyzes the effect of monetary policy on the three variables according to the output gap,inflation and the time-varying response of financial stability to interest rate shocks;Finally,according to the analysis results,we summarize and give policy recommendations.The main conclusions of this paper are as follows:(1)The financial stability index constructed based on TVP-FAVAR model can better reflect the dynamic characteristics of China’s financial stability,which has the characteristics of overall upward and cyclical fluctuations;(2)China’s monetary policy has a preference for timely adjustment and control of the output gap,inflation and financial stability.At this stage,the monetary policy has an obvious preference for adjustment and control of inflation,while the attention to the output gap and financial stability has declined;(3)The regulatory effect of the central bank’s monetary policy on the output gap,inflation and financial stability has a time-varying feature.From the horizontal perspective,the regulatory effect of interest rate on inflation is the best.From the vertical perspective,due to the deepening of the market-oriented reform of interest rate,the regulatory effect of interest rate on the output gap,inflation and financial stability has been enhanced.