Why there exists asymmetric monetary policy effect in China: Evidence on menu cost model and price transmission channel

摘要

There exists asymmetric monetary policy effect in China, which means that tight monetary policy affects economy more strongly than easy monetary policy. In this paper, we study the mechanism of the asymmetric effect through the price transmission channel of monetary policy by menu cost model based on sticky price. We find that the asymmetric price transmission mechanism is the main cause of the asymmetry effect of monetary policy. Firms decide to adjust price or output in terms of laws that which menu cost and distortion cost is lower when confronting with money shocks. Downward menu cost is higher than the upward, and the distortion cost varies nonlinearly with the increase of inflation trend. All of which induce asymmetric sticky price and then the asymmetric transmission mechanism of monetary policy. That is the crux of mechanism of the asymmetric effect. And so the effect of the monetary policy on economy varies with inflation rate, and the asymmetric degree is different during the different inflation regime and the curve of asymmetry is hump-shaped. Further, we verify the theory construed in this paper by the state space model with data in China. We suggest that the central bank should consider not only the directions and intension of the policy but also inflation rate regime to stabilize the economic growth.