Transformation of Monetary Policy Regulation in the Process of Interest Rate Liberalization

Abstract

Abstract: Based on the systematic combing of the monetary policy regulation transformation in the process of interest rate liberalization, this paper takes the process of China's interest rate deregulation as a natural experiment and makes use of the micro-data of 1044 listed companies in the period of 2005-2018 to conduct a phased empirical test. The findings show that the monetary policy regulation presented obvious characteristics of benchmark interest rate regulation before the deregulation of the loan interest rate, while after the deregulation of the loan interest rate, it presents the transformation characteristics of paralleled benchmark interest rate regulation and market interest rate regulation, and after the deregulation of deposit interest rate it presents the transformation characteristics of paralleled monetary quantitative regulation and market interest rate regulation. Taking China's special economic and financial environment into consideration, the transformation of monetary policy regulation in the process of interest rate liberalization should be carried out along the two-way reform ideas of quantitative adjustment regulation and price adjustment perfection. The quantity-based monetary policy should pay full attention to the adjustment from the traditional demand management tool to the structural adjustment too,the price-based monetary policy should focus on improving the quotation of LPR and cultivating the formation and transmission mechanism of market interest rate, so as to maintain financial stability and stable economic growth.

Key words: interest rate liberalization, quantity-based monetary policy, price-based monetary policy

LI Cheng, WANG Dongyang. Transformation of Monetary Policy Regulation in the Process of Interest Rate Liberalization[J]. JOURNAL OF CONTEMPORARY FINANCE AND ECONOMICS, 2021, 0(1): 47-60.

References

[1] Bindseil U.Monetary Policy Implementation[M]. New York: Oxford University Press, 2004.
[2] Chen X., Luo R.Study on Enterprise Borrowing Costs and Capital Allocation Efficiency in Interest Rate Liberation Reform[J]. Economic Management Journal, 2017, (3): 162-173.
[3] Fang Y., Zhao S.Study on Choice of Benchmark Interest Rate in China's Financial Market under Dual-Track Interest Rate System - Analysis Based on Directed Acyclic Graph[J]. Contemporary Finance and Economics, 2012, (7): 50-59.
[4] Friedman M.The Role of Monetary Policy[J]. The American Economic Review, 1968, 58(1): 1-17.
[5] Fry M.Money and Capital of Financial Deepening in Economic Development?[J]. Journal of Money, Credit, and Banking, 1978, 10(4): 464-475.
[6] Guo Y., Dai Y., Peng Y.Study on Interest Rate Transmission Efficiency of China's Monetary Policies: 2008-2017[J]. Journal of Financial Research, 2018, (12): 37-54.
[7] Jin Z., Hong H., Li H.Impact of Interest Rate Liberation on Effectiveness of Monetary Policies and Economic Structure Adjustment[J]. Economic Research Journal, 2013, (4): 69-82.
[8] Kaminsky G., Schmukler S. Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization [R]. NBER Working Paper, No.9787, 2003.
[9] Keynes J.The General Theory of Employment, Interest, and Money[M]. New York: Macmillan, 1936.
[10] Kydland F., Prescott F.Rules Rather than Discretion[J]. Journal of Political Economy, 1977, 85(3): 473-491.
[11] Li C., Wang D.Monetary Policy Cycle Based on Economic Development Cycle: Theoretical Logic and Empirical Test[J]. Economist, 2019, (2): 90-102.
[12] Lucas R.Expectations and the Neutrality of Money[J]. Journal of Economic Theory, 1972, 4(2): 103-124.
[13] McKinnon R. Money and Capital in Economic Development[M]. Washington: Brookings Institution, 1973.
[14] Qian X., Du L., Ma W.Study on Effectiveness of China's Monetary Policies in Interest Rate Transmission: Mediating Effect and Differences inside and outside System[J]. Management World, 2015, (11): 11-28.
[15] Ranciere R., Tornell A., Westermann F.Decomposing the Effects of Financial Liberalization: Crises vs. Growth[J]. Journal of Banking and Finance, 2006, 30(12): 3331-3348.
[16] Shaw E.Financial Deepening in Economic Development[M]. New York: Oxford University Press, 1973.
[17] Shen Y., Xu W., Jiang D. Credit Control,Implicit Contracts and Loan Interest Rate De-facto Liberation[J]. Journal of Financial Research, 2018, (7): 49-68.
[18] Sheng S., Wu P.Study on Dual Transmission Mechanism of China's Monetary Policies -- “Two Intermediary Targets, Two Regulatory Targets” Model[J]. Economic Research Journal, 2008, (10): 37-51.
[19] Sun G., Duan Z.Study on Interest Rate Transmission Mechanism of Medium-Term Policies -- Analysis Based on Decision-Making Mechanism with Two Departments of Commercial Banks[J]. China Economic Quarterly, 2016, (10): 349-370.
[20] Wang D., Zhang X.Research on Interest Rate Liberation, and Behavior of Enterprise Financing and Credit Granting by Financial Institutions[J]. World Economy, 2007, (2): 50-59.
[21] Wang H., Yang Z., Ruan G., Cao Y.Deregulation of Interest Rates, Excessive Debts and Debt Maturity Structure[J]. Journal of Financial Research, 2018, (2): 83-100.
[22] Wang T., Li C.Why Does Monetary Policy Regulation Fall into Dilemma of "Stable Growth" and “Bubble Inhibition"? --An Analysis from Perspective of Heterogeneity in Nature of Ownership of State-Owned and Non-State-Owned Enterprises[J]. Economist, 2017, (10): 65-76.
[23] Wu X.Asset and Liability Management of Commercial Banks in Financial Liberation Reform[J]. Journal of Financial Research, 2013, (12): 1-15.
[24] Xiang W., Li H.Challenges and Direction of Transformation of Quantity-Based Monetary Policy Regulation by China's Central Bank[J]. Studies of International Finance, 2012, (7): 20-28.
[25] Xu S., Li H.A Theoretical Model of Interest Rate Liberation[J]. World Economy, 2006, (8): 13-22.
[26] Xu Z.Transformation of China's Monetary Control Modes in Stage of High-Quality Economic Development[J]. Journal of Financial Research, 2018, (4): 1-19.
[27] Yang Z., Liu F., Li M. Interest Rate Liberation,Inefficient Investment and Capital Allocation --A Natural Experiment Based on People's Bank of China's Relinquishing Upper and Lower Limits of Loan Interest Rates[J]. Journal of Financial Research, 2017, (5): 81-96.
[28] Yao Y., Li H.Empirical Study on Credit Channels of Monetary Policy Transmission in China: New Evidence for Aggregate Financing Structure[J]. World Economy, 2013, (3): 3-32.
[29] Yu K., Li Z., Zhang X., Xu J.Mystery of Enterprise Investment Efficiency: Financing Constraint Hypothesis and Monetary Policy Shock[J]. Economic Research Journal, 2014, (5) 106-120.
[30] Zhang W., Jing W., Jiang X.Effect of China's Targeted Monetary Policies and Transformation of Monetary Regulation Modes[J]. Collected Essays on Finance and Economics, 2019, (11): 51-60.
[31] Zhang X., Yang D.Issues on Effectiveness of China's Monetary Policies: An Analysis Based on Quarterly Data from 1996 to 2009[J]. Finance & Trade Economics, 2010, (6): 27-32.
[32] Zhang X.Development, Challenge and Prospect of Monetary Policies[J]. China Finance, 2015, (19): 28-30.
[33] Zhou X.Establishing a Financial Macro-Control System in Line with China's National Conditions[J]. China Finance, 2011, (13): 9-13.
[34] Zhou X.Main Characteristics of China's Monetary Policies since the New Century[J]. China finance, 2013, (2): 9-14.