Research On The Time-varying Response Characteristics Of Monetary Policy Based On Financial Condition Index

With the vigorous development of China’s financial market,the controllability and measurability of money supply indicators have declined,and the effectiveness of quantitative intermediary targets has weakened.The deepening of the interest rate liberalization reform has made the interest rate transmission mechanism smoother and smoother,and the intermediate goal of price-based monetary policy has become the direction of transformation.At the same time,since the international financial crisis in 2008,due to the consideration of preventing systemic financial risks,financial stability has become an important concern of financial regulators in various countries.Therefore,this thesis adds a financial condition index(FCI),which measures the overall financial stability,to the current mainstream price-based monetary policy rule Taylor rule,and conducts an empirical study on the extended time-varying monetary policy interest rate response function,which provides ideas for the implementation of China’s monetary policy.Specifically,this thesis selects the monthly data from January 2002 to December2021,and uses the TVP-FAVAR model to construct the financial condition index.And analyze the relationship between FCI and price stability and economic growth,and compare the regulatory effect of FCI and money supply as the intermediary goal of monetary policy.Secondly,this thesis integrates the constructed financial condition index into Taylor’s rule,adopts TVP-SV-SVAR model,analyzes the time-varying parameters and time-varying impulse response function of forward-looking Taylor rule,and studies the response law of monetary policy to financial condition index.The empirical conclusions are as follows: As a macroeconomic early warning indicator,the financial condition index is more forward-looking than output and inflation;The controllability of the financial condition index as an intermediary target of monetary policy is better than that of money supply;The regulatory effect of monetary policy on financial stability and the impact of financial stability on monetary policy are affected by the overall economic situation.In times of financial crisis,financial conditions are more responsive to monetary policy,and interest rates are more responsive to financial conditions.Finally,based on the theoretical and empirical results,this thesis gives policy recommendations from two aspects: the use of the financial conditions index as an indicator of monetary policy,and the complementarity of discretionary and interest rate rules.