Research on Asymmetric Effects of China’s Monetary Policy
|Keywords||Monetary Policy Asymmetric Effect Credit Transmission Mechanism|
Faced with the ever-changing domestic and international economic situation, China’s Central Bank continued to implement monetary policy to affect the Economic fluctuations.However, there is a big difference between the effects of previous monetary policy. Tightening monetary policy and expansionary monetary policy affect the output differently and the relationship between the monetary policy and economic output is not just a simple linear. So an asymmetry of monetary policy is existent.Based on the situation of economic fluctuations and monetary policy orientation, this paper divided the time from 1992 to 2010 into two economic cycles, 1992 -2002 and 2003 -2010, then tested the presence of asymmetric effects of monetary policy respectively. The result showed from 1992 to 2001, the stimulation effect of the positive monetary policy is not obvious and the negative monetary shocks have a certain impact on output, positive and negative effects of monetary shocks has significant non-symmetry, consistent with the most countries and economic theory, but the empirical results of the second phase showed an opposite non-symmetry, the effect of tightening monetary policy on economic output was not obvious and the stimulus of expansionary monetary policy to the economy is very significant. This change can be explained as the economic and financial environment in China has a rapid development in recent years and investment enthusiasm of local governments is also an important impulse.In the part of mechanism analysis, this paper focused on the period 2003 to 2010 and explain the asymmetry of monetary policy from two aspects : the monetary policy transmission mechanism and the investment enthusiasm of local governments .This paper argues that as the development of financial markets, in periods of economic expansion, China’s commercial banks can expand their capital via direct financing and the introduction of foreign investors and private capital, which partially offset the central bank’s tightening monetary policy. The enterprises also can solve their financial problem in the stock market and bond market, which reduce their dependence on commercial banks, so Credit Transmission Mechanism of the Central banks - Commercial Bank - Enterprises lack of patency, which makes tightening monetary policy performed poorly. In times of economic contraction, the central bank began to implement expansionary monetary policy, commercial banks have confidence in the central government with the proactive fiscal policy and they also pursue the profit maximization, so they will expand their lending and the enterprises also like to accept the loans for production and construction as they also have strong confidence in the proactive fiscal policy and their own high profitability. So the expansionary monetary policy can have an effect on the real economy. In addition, this paper highlighted that the investment impulse of local governments in China is one of the reasons of the asymmetric effect. On the one hand, the existing performance evaluation system of government officials and unreasonable tax system are two important incentives to the local government investment, on the other hand, the development of the local government financing platform make the expansion of the investment boom economically possible. Psychological desire and economic conditions implement the achievements of investment boom of local governments, which undermined the effectiveness of tightening monetary policy and amplify the stimulation of expansionary monetary policy on the output, resulting in the asymmetry of monetary policy.Finally, this paper proposes to strengthen the cooperation of fiscal policy and monetary policy, to promote the marketization of interest rates and to have a stronger regulation on investment proposals of local governments.