Research into the Effect of Monetary Supply on Effectiveness of China’s Monetary Policy

Liqun Du, Wenzhong Li

Abstract


The paper discusses the effect of monetary supply on effectiveness of China’s monetary policy and observes changes of the effect before and after the international financial crisis broke out in 2008 by analyzing the macroeconomic data between 1995 and 2013. The result indicates that money is non-neutral. Before the financial crisis, money has stable impact on both economic output and price, while credit channel is mainly the transmission channel of economic output and monetary channel is mainly the transmission channel of price. After the financial crisis, the effect of money on changes of both economic output and price is obviously uncontrollable. Monetary channel and credit channel have main impact on economic output, but credit channel has become the main transmission channel of price.

Key words: monetary supply, effectiveness of monetary policy, financial crisis

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