Research on the Monetary Policy Regulation Model and Operational Mechanism of China's Monetary Policy

Author: Gu Ju'e
Publisher:
Publish Date: 2001-07-01
Features: The regulatory objectives of China's monetary policy are the public choice with social interests as the highest goal, and the regulatory measures are the sum of credit policies and measures that control and regulate the money supply. Since 1984, the People's Bank of China has exercised the functions of both the monetary authority and the central bank, serving as the main body of China's monetary policy regulation. Deposit money banks are both the objects of regulation and the carriers of regulatory policies and measures. Enterprises and households are the subjects of microeconomic activities that are ultimately guided and restricted. Financial markets such as the money market, capital market, and foreign exchange market are the media for regulation. Monetary policy instruments, operational target variables, intermediate targets, and final target variables are the regulatory variables of monetary policy, forming the elements of the monetary policy regulatory system. How to utilize the research thinking and perspective of systems science, analyze and study the operational mechanisms and interaction relationships among the regulatory elements of China's monetary policy regulation from different perspectives and levels, and accurately answer questions such as "what" the results of China's monetary policy regulatory practice are, is particularly important. Dr. Gu Ju'e's book, "Research on the Regulatory Mode and Operational Mechanism of China's Monetary Policy," closely combines theoretical research with empirical research, with a focus on empirical research, and provides conclusions on "what" the results of China's monetary policy regulatory practice are and "what" regulatory mode should be adopted. Following the analytical approach of institutional change, the book selects monetary variables, macroeconomic variables, and corresponding data and information. Based on the principle that model methods should be closely aligned with the research content and effectively match it, it selects model methods such as the single-root ADF test, Granger causality test, cointegration test, symmetry test, impulse response dynamic simulation analysis, and game analysis. It adopts an inverse research technical approach, starting from the "effectiveness" test of the operational results of monetary policy regulation, to explore and reveal the pathways (transmission mechanisms), means (regulatory variables), and principles (regulatory methods) that produce "effectiveness," as well as the operational mechanisms. Through empirical research using data from 1984 to 1999, the book draws the following valuable conclusions: ① China's money supply shocks are the main cause of GDP and price changes, with a significant effect, and monetary policy in China is not neutral; China's economic growth is money supply-supported. ② The credit rationing mechanism is the main channel for the transmission of China's monetary policy. ③ The total amount and structure of base money are highly correlated with the central bank's reserve fund interest rate, one-year refinance rate, one-year interest rate differential between financial institutions' loans and deposits, and the actual reserve requirement rate. ④ The actual disturbances in the positive and negative money supply M2 have a symmetric impact on GDP at a 10% confidence level. ⑤ The lag time of nominal money supply on nominal GDP and prices is 5 months and 7 months, respectively. ⑥ There is a long-term stable relationship between LNMB and interest rates with LNM2. ⑦ The effectiveness of the real interest rate in affecting GDP and prices through M2 is better than its direct effect, the real interest rate is a secondary cause of changes in money supply, and base money is the primary cause of changes in money supply, etc. Based on empirical research, the book also combines normative analysis, proposing that China's monetary policy regulatory mode is composed of regulatory variables and regulatory methods, where the operational target variable of monetary policy is base money and interest rates, the intermediate target variable is M2 (observing M1), and the regulatory method should be dominated by "the single rule" and supplemented by "counter-cyclical selection," with both achieving effective matching in operation. It also constructs the driving force, constraints, decision-making, and regulatory mechanisms of China's monetary policy regulation, as well as the harmonious mechanism of the coordinated operation of these mechanisms. Of course, no research can be perfect, and some proposals in this book are open to debate, and some content also needs to be supplemented and improved. In particular, theoretical explanations and analyses around the empirical analysis results need to be supplemented and improved, and further research is needed to deepen the connection between the new viewpoints and terms proposed and the existing theoretical framework system. Overall, the book reflects the close integration of theoretical research and empirical research, especially the and standardized content of empirical research. Therefore, I recommend this book to readers. Xi Youmin, May 27, 2001, at Xi'an Jiaotong University