The Effects and Autonomy of Monetary Policy in China from 1994 to 2004

摘要

This paper empirically examines effects and autonomy of China’s monetary policy using vector autoregressive model (VAR) and Granger causality methodology. The preliminary results based on quarterly data from 1994 to 2004 indicates that (1) the autonomy of China’s monetary policy maintains systematically in the inspected period and (2) money stocks and interest rates do not Granger cause real GDP and CPI except M0 Granger causes CPI. The reason for the weak effectiveness of china’s monetary policy is not the exterior restriction with the old pegged exchange rate system but the internal factors which block the pipeline of monetary policy. Alternative strategies to improve the effect of monetary policy are to accelerate the reforms of thecurrent mandatory bank settlement system and perfect managerial mechanism of enterprise to enhance the sensitiveness of market agencies to policies but not abandon the policy to maintain the yuan's basic stability.