Analysis of Dynamic Effects of Monetary and Financial Policies on the Economic Growth
|Keywords||monetary policy financial policy economic growth Johansen co-integration analysis Granger causality test impulse response function variance decomposition|
This paper first makes qualitative analysis of the effect on monetary and financial policies to the economic growth, then uses quantitative methods to analyze the effect on monetary and financial policies to the economic growth.Trough the relationship among monetary policy , financial policy and the balance between the overall supply and demand, this paper makes qualitative analysis of the effect on monetary and financial policies to the economic growth by using IS-LM curve. IS can be used for analyzing financial policy for influence level of national income, and LM for analyzing monetary policy. Monetary policy has an effect on economic growth mainly embodies in money supply which is controlled by central bank effects on the total output. According to the size of the slope in IS and LM curve through government expenditure and taxation to analyze the influence of GDP changes. Also, through the size of the slope in IS and LM curve to analyze the effect on GDP changes, investments have much higher sensitive to interest rates, private investment extruded by implementing expansionary policy will become more, at the same time cut down national income, that is , financial policy effects have reduced.By using unit root and Johansen co-integration analysis, ECM, VAR model of Granger causality test, IRF, and variance decomposition quantitative methods to make quantitative analysis of the effect on monetary and financial policies to the economic growth influences. monetary policy instrument choose the deposit reserve rate and rediscount rate to analyze GDP, VAR model is constructed by implementing unit root and co-integration test. Apply IRF to analyze the dynamic relationship among rediscount rate,reserve-requirement ratio and GDP, The analysis reveals that the function of increase rediscount rate on short-term and long-term caused by GDP is obvious. However, reserve-requirement ratio has a little effect on long-term positive direction of GDP. The contribution of process of rediscount rate and reserve–requirement ratio as variance decomposition indicate that its impact produce greater effect on GDP fluctuation on short-term, but on long-term, it presents obvious downtrend, the effect of impact on rediscount rate to GDP fluctuation are both greater whatever on short-term and long -term, while the impact on reserve-requirement to GDP fluctuation are both smaller. Choosing interest rate, exchange rate and total lending as monetary policy parameters, to analyze them with the dynamic relationship of GDP, IRF reveals that the addition on long-term loan has a direct stimulus to the GDP growth, when an impact appeared in loan, there is no obvious differences; the interest rates will have an impact when it move in the opposite direction of interest rates, then the interest rates have a negative effect to GDP; when exchange rate has an impact, it changes opposite directions of exchange rate, but there still has a long-term lag phase, variations of exchange rate has a long term negative effect to GDP; variance decomposition method shows that impact on itself has an clear effect on GDP fluctuation on short-term, it presents long-term decline and the inertia effect are significant, but the inertia effect will disappear on long-term. The effects on loan impact to GDP fluctuation have distinctive impact both on short-term and long-term, its variance contribution rate always greater than other variable, therefore, provide a loan is the most important parameter’s influence;the impact on interest rates and exchange rates are relative less important, but the impact is significant on long-term. Analysis of the dynamic relationship between GDP and money supply shows both of them exist long-term stability of dynamic and property relations, IRF indicates the impact of money supply are non-neutral on short-term, but on long-term ,changes of money supply will not produce permanent influence to output, monetary is neutral in long-term. the result of Granger causality test shows that there is a correlation and influence between money supply and GDP.With the same method, we analyze the effect on financial policy to economic growth. The co-integration result reveals that among GDP, financial revenue, public financial expenditure and deficit, there exists a co-integration relationship, namely a long equilibrium relationship. IRF method analyzes the dynamic relationship of GDP among financial revenue, public financial expenditure and deficit, conclusion shows the financial revenue increase will impede the GDP growth, when financial revenue appears an impact, it presents downtrend at the beginning, then it will have a gradual increase until reaches equilibrium level; when public financial expenditure arises an impact, GDP and public financial expenditure presents changes at the same direction, public financial expenditure increases will have a great pushing effect on GDP, while its stimulus will disappear on long-term. When there is an impact to deficit, it will drop at the start, GDP and deficit changes alter at the same direction, also have an significant effect, deficit changes have a long-term positive effects on GDP. Use variance decomposition technique to analyze various kinds of financial policy to the impact of contribution rate shows its impact on GDP fluctuations are comparative large on short-term and long-term. But on long-term it will appears downtrend, this explains the GDP changes have an clear inertia effect, while on long-term it will decrease; deficit impacts have relative large impact on both short-term and long-term, this reveals deficit is the most significant impact parameter, the impacts of financial revenue have smaller relative importance. The analysis effects to public debt shows GDP and public debt have co-integration relationship, namely both of them exist long-term stability of property relation. IRF method analysis shows public debt to the impact of GDP has a negative effect. This is mainly due to the government expenditure which account larger proportional debt that appear extrusion, from the crowding-out effect of public debt, we can conclude that widely provide constructive state debt is one of the method implemented in our country to make up fund shortage and promote economic growth, constructive public debt is an effective financial policy instrument, with positive and negative influences for its economic growth.