in east of China [Discussion,on,the,Transmission,Mechanism,of,Monetary,Policy,in,China]

　　Abstract. This paper adopts such methods as unit root test, co-integration test and Granger Causality Test, etc. It makes analysis on the monetary channel and the credit channel of the transmission mechanism of monetary policy in our country. According to the econometric test of relevant season data from 1998 to 2009 in our country, monetary supply has played a limited role in the real interest rate. In addition, the real interest rate can barely influence the actual investment and the actual consumption. The total amount of credit can apparently influence the actual investment and the actual consumption. Although it is the case, the amount of credit has relatively little sensitivity on the monetary supply. This shows that in the transmission of the monetary policy in our country in the current phrase, there are severe defects on the monetary channel. Under these circumstances, it has become the key to promote the transmission efficiency of the monetary policies in our country by promoting the interest rate mercerization reform, developing the financial market, adjusting the financial asset structure, broadening the financing channel of the small and middle enterprises, and perfecting the commercial banks as well as the enterprise management structures and so on.
　　Key words:monetary policy; transmission mechanism;credit rationing
　　
　　
　　1.Introduction
　　The basic operation function of the monetary policy in our country is to adjust the monetary supply and the credit capital amount.
　　The western economics have currently achieved the consistent opinions on the transmission principle. It has divided the transmission mechanism into two large categories, which are the monetary channel and the credit channel.
　　As the specialty of the national condition in our country, there are great differences between the economic financial environment and the transmission environment of the monetary policies in our country and in the western countries. This is the process through which monetary policy decisions affect the economy in general and the price level in particular. The transmission mechanism is characterized by long, variable and uncertain time lags. Thus it is difficult to predict the precise effect of monetary policy actions on the economy and price level. Therefore, there are great differences between the monetary policy transmission mechanism in our country in the current phrase and the monetary policy transmission mechanism in the western countries.
　　
　　2.Econometric Test
　　2.1.Variable selection and data interpretation
　　Considering the process of the financial system reformation in our country and the transformation of the monetary policy transmission mechanism in our country, this paper adopts such methods as unit root test, co-integration test and Granger Causality Test, etc. It makes analysis on the monetary channel and the credit channel of the transmission mechanism of monetary policy in our country. According to the econometric test of relevant season data from 1998 to 2009 in our country, monetary supply has played a limited role in the real interest rate. Moreover, it adopts the data in January, 1997. In addition, the real interest rate can barely influence the actual investment and the actual consumption. The total amount of credit can apparently influence the actual investment and the actual consumption. Although it is the case, the amount of credit has relatively little sensitivity on the monetary supply. This shows that in the transmission of the monetary policy in our country in the current phrase, there are severe defects on the monetary channel. Under these circumstances, it has become the key to promote the transmission efficiency of the monetary policies in our country by promoting the interest rate mercerization reform, developing the financial market, adjusting the financial asset structure, broadening the financing channel of the small and middle enterprises, and perfecting the commercial banks as well as the enterprise management structures and so on.
　　Without special statement, the data from this paper are all from National Bureau of Statistics of China (http://www.stats.省略/), the People’s Bank of China, (http://www.pbc.省略/), Chinese Monthly Monitoring Data (http://www.in.省略/analyses/datadoc/cnmonth.htm), and relevant journals such as Chinese Financial Yearbook and Chinese People’s Bank of China Statistic Journal and so on. For the primitive data with strong character of season like M1, M2, L, I, and C, they are gotten rid of the seasonal influence by X-11.
　　2.2.Test results
　　2.2.1.Unit root test
　　In order to avoid the spurious regression problem, the unit root test should be conducted first, which is seen in Fig. 1.
　　Table 1 ADF test results on variables unit root
　　
　　
　　2.2.2.Co-integration test
　　From the analysis into ①M1→r→I，②M1→r→C，③M2→r→I，④M2→r→C，⑤M1→L→I, ⑥M1→L→C, ⑦M2→L→I，⑧M2→L→C, there is no co-integration relationship between M1 and r, M1 and L, r and C, L and C. Therefore, the relationships between M2 and r, M2 and L, r and I, as well as L and I are testified. Here Engle-Granger test method is adopted. The results are shown in table 2.
　　Table 2 the test result of co-integration
　　
　　Note: � shows significance under the significance level of 10%; �� shows significance under the significance level of 5%; ��� shows significance under the significance level of 1%.
　　2.2.3. Granger Causality Test
　　The Granger causality test is a statistical hypothesis test for determining whether one time series is useful in forecasting another. The Granger test is designed to handle pairs of variables, and may produce misleading results when the true relationship involves three or more variables. A similar test involving more variables can be applied with vector auto regression. According to D.W. value and AIC value, the optimistic order lag is determined. The test results of Granger Causality Test are shown in table 3.
　　
　　Table 3 test results of Granger Causality Test
　　
　　3.Monetary Channel Transmission of Monetary Policy in our Country
　　3.1.The influence of monetary supply to the actual interest rate
　　Under the significance level of 5%, M1 is r’s Granger causality reason, but M2 is not r’s Granger causality reason.
　　3.2.The influence of the actual interest rate to the actual investment and actual consumption
　　In the first place, the independency of the central bank is not high; in the second place, the monetary market interest rate and the financial institution rate has not connected to each other. In the third place, there are lags on the adjustment of the interest rate.
　　
　　4.Credit Channel Transmission of Monetary Policy in our Country
　　The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates.
　　4.1.The influence of the credit amount to the actual investment and actual consumption
　　Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault. Under the significance level of 1%, L and I have the co-integration relationship. Under the significance level of 0.23%, L is I’s Granger causality reason. Under the significance level of 4.00%, L is C’s Granger causality reason.
　　4.2.The influence of monetary supply to the credit amount
　　The monetary policy cannot effectively adjust the credit amount. The reasons are shown as the followings:
　　1)The financial institutions in our country have some problems in the amount, distribution and the structures.
　　2)The state-owned commercial banks in our country are concentrated. They are measures employed by governments to influence economic activity, specifically by manipulating the money supply and interest rates.
　　3)Monetary and fiscal policy are two ways in which governments attempt to achieve or maintain high levels of employment, price stability, and economic growth.
　　
　　5.Countermeasures to Improve the Monetary Policy Transmission Efficiency in our Country
　　5.1.Countermeasures to improve the monetary policy transmission efficiency in our country
　　1)Promote the interest rate mercerization reform
　　2)Develop the financial market, adjusting the financial asset structure.
　　3)Broaden the financing channel of the small and middle enterprises.
　　4)Perfect the commercial banks as well as the enterprise management structures and so on.
　　5.2.Countermeasures to dredge the monetary policy transmission efficiency in our country
　　1)Control the demand for, and supply of, money as a means of controlling the economy.
　　2)The main tool of monetary policy is the level of interest, essentially the price of money, which a government can influence through its debt financing activities on the open market.
　　3)The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates.
　　4)Monetary policy became the central economic instrument used by the governments in the belief that the control of inflation was the key to stable economic growth, and the level of inflation was determined by the growth in the money supply.
　　5)The money supply proved very difficult to control, and interest rates a rather blunt economic tool, and a less dogmatically monetarist stance was assumed.
　　6)They are measures employed by governments to influence economic activity, specifically by manipulating the money supply and interest rates.
　　
　　6.References
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　　[2]Arturo Estrella, Frederic S. Mishkin. Is there a role for monetary aggregates in the conduct of monetary policy?[J]. Journal of Monetary Economics, 1997, 40 (2):279-304.
　　[3]Beng Soon Chong, Ming-Hua Liu, Keshab Shrestha. Monetary transmission via the administered interest rates channel[J]. Journal of Banking and Finance, 2006, 30(5):1467-1484.
　　[4]Bernanke B S, Mark Gertler. Inside the black box: The Credit Channel of Monetary Policy Transmission. Journal of Economic Perspectives, 1995, 9(4): 27-48.
　　[5]Luca Dedola and Francesco Lippi. The monetary transmission mechanism: Evidence from the Industries of five OECD Countries. European Economic Review, 2005, 49(6): 1543-1569.
　　[6]Matteo Iacoviello, Raoul Minetti. The credit channel of monetary policy: Evidence from the housing market[J]. Journal of Macroeconomics, 2008, 30 (1): 69-96.
　　[7]Simona Mateut, Spiros Bougheas, Paul Mizen Trade. credit, bank lending and monetary policy transmission[J]. European Economic Review, 2006, 50 (3):603-629.

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