On the asymmetry of the role of monetary policy in my country and the selection of regulatory models

Abstract Under the premise of the effectiveness of monetary policy, there is an asymmetry of the role of monetary policy: contraction The effect of monetary policy on reducing economic growth is greater than the effect of expansionary monetary policy on increasing economic growth. Judging from the practice of my country's monetary policy operation process, how to choose the appropriate control mode is a very critical issue.

Keywords: Monetary policy asymmetry, discretionary single rule

1. The asymmetry of monetary policy and its causes

The effectiveness of monetary policy What is studied is whether monetary policy can affect output systematically and to what extent. The controversy over this issue has always been a hot issue in macroeconomics. Under this premise, contractionary monetary policy has the effect of reducing the economic growth rate, and expansionary monetary policy has the effect of increasing the economic growth rate. As early as the 1930s, Keynes proposed the "liquidity trap" and believed that monetary policy was not as effective as fiscal policy in the face of a major crisis, but he never completely denied the effectiveness of monetary policy. In the early 1940s, the famous economist Hansen once said: "Monetary weapons can indeed be effectively used to stop economic expansion." At the same time, he also noted: "The economic depression of the 1930s provided sufficient evidence that "It is not sufficient to rely solely on cheap monetary expansion to restore economic growth." Some current empirical studies have found that significant monetary policy asymmetry does exist in the United States and some European countries.

There are three main reasons for the asymmetric effect of monetary policy: The first is that at different stages of the economic cycle, economic actors have different expectations formation mechanisms and modes of action, which leads to the The asymmetry of policy effects; the second point is the existence of various credit constraints in banks and capital markets. These credit constraints can only become tight constraints and play an actual role when monetary policy is tightened; the third point is that in the economy There are various nominal and real stickiness factors, such as price stickiness and wage rigidity, which make prices more flexible to change upward during economic expansion than downward during economic contraction.

2. The choice of my country’s macro-control model under the asymmetry of monetary policy

In the more than 20 years since China’s reform and opening up, it has experienced about 4 to 5 complete economic cycles. Since 1998, China has continuously implemented proactive fiscal policies and prudent monetary policies. The empirical analysis results conducted by Liu Jinquan (2002) show that tightening monetary policy has a significant reducing effect on actual output, which is stronger than the promoting effect of expansionary monetary policy on output.

Severe inflation occurred in our country from 1993 to 1996. The central bank chose money supply as an intermediary indicator when formulating monetary policy. In fact, it was implementing a moderately tight monetary policy, mainly to prevent social inflation. An increase in prices caused by an out-of-control money supply. The money supply has a very significant impact on the price level. To stabilize prices, the growth of the money supply must be strictly controlled. In the five years after 1997, my country experienced a five-year period of deflation. On the one hand, the excess supply exceeded demand and the economy urgently needed to increase the money supply to stimulate domestic demand; on the other hand, a large number of deposits in the banking system were idle. The central bank's behavior of increasing the money supply was also resolved by the reverse choice of economic entities to avoid risks. In other words, during the period of deflation, the role of monetary policy was greatly reduced. It is precisely because of the asymmetric effect of monetary policy that our country should carefully select appropriate intermediary indicators and control models for monetary policy.

Keynes and Friedman, two famous academic figures in the economics field, have different views on the regulation model. Keynes believed that money demand is unstable, and a discretionary monetary policy should be implemented, acting against the direction of the economic wind; due to the diminishing marginal propensity to consume and the diminishing marginal benefit of capital, effective demand is insufficient, so the ultimate goal of monetary policy is full employment. . Friedman believed that money demand was stable, advocated using a "single rule" monetary policy to replace Keynes' discretionary monetary policy, and proposed a long-term stable growth rate of money supply as the manipulation target of monetary policy. The ultimate goal is Prices are stable.

Discretionary decision-making, also called countercyclical monetary policy, refers to the government's discretionary decision to use macroeconomic policies based on the stage characteristics of economic operation and policy effects. The following points are usually considered when making successive decisions:

(1) Act against the wind

When the economy is in recession, expansionary fiscal policy and monetary policy are usually chosen; when the economy is overheating or there is deflation When inflation occurs, contractionary fiscal and monetary policies are usually chosen.

(2) Policy lag

There are different types of lags in the economy such as data lag, cognitive lag, legislative lag, implementation lag, and action lag . The government must implement and select economic control measures in a timely manner to prevent the previous round of control policies from taking effect after the economic wind direction changes.

(3) Policy combination and coordination

Usually there are policy combinations of double tightening and double loosening and one tightening and one loosening.

The "single rule" believes that due to reasons such as monetary policy lags, counter-cyclical intervention will not only fail to smooth out the cycle, but will intensify cyclical fluctuations. The derivation logic is: the stability of the consumption function determines the stability of money demand; the stability of money demand determines the stability of money supply; the stability of money supply determines that the monetary policy control model must be a "single rule."

In fact, all countries in the world pursue a "discretionary decision" model in selecting monetary policy control models. The frequent adjustments of the Federal Reserve's interest rates are well known; the change curve of China's deposit reserve ratio is not horizontal. In addition, it is easy to see from the complicated and changeable expressions of China's monetary policy (see Table 1) that my country's central bank basically follows a "discretionary decision" monetary policy control model. However, it is worth noting that the impact of my country's money supply is asymmetric. Compared with the negative currency impact, the effect of positive currency shock is relatively weak. This also explains the "brake" of my country's macro-control of economic operation. Easy, hard to start" phenomenon.

From the perspective of the improvement of monetary policy operations: ① With the trend of the transformation of the monetary policy transmission mechanism from the monetary channel to the interest rate channel, monetary policy should not simply be measured by whether the growth rate of money supply is appropriate. The relationship between the growth rate of money supply, economic growth and price increases should be grasped. We should pay more attention to the ultimate goal, that is, the level of price increase, rather than the intermediate goal, that is, changes in money supply; ② In recent years, my country's capital market has developed rapidly. On the one hand, the substitution relationship between capital market investment and bank savings deposits has become increasingly obvious, and customer margins have The increasing impact on the currency hierarchy has led to the comprehensiveness of the M2 indicator being questioned; on the other hand, the wealth effect of my country's capital market is not significant, and asset prices have little impact on the real economy, especially investment and consumption. Therefore, the operation of monetary policy should mainly aim at the stability and growth of the real economy, while giving due consideration to the needs of the capital market; ③ The expectations and confidence of producers and consumers have an increasingly effective transmission effect on monetary policy. my country's monetary policy practice should properly consider the role of expected factors. Before making monetary policy decisions, there should be an "expectation" of the role of expected factors to ensure the effectiveness of monetary policy. Since the implementation of monetary policy relies on expectations for future economic changes, and economic operations are uncertain, it is currently beyond our ability to understand market changes, changes in expectations, and the public's response to changes in monetary policy. Therefore, the central bank It may be a realistic option to implement monetary policy with timely and prudent decisions and in a gradual and fine-tuning manner.

3. How to combine fiscal policy and monetary policy in the new era

Since the reform and opening up, China’s economic structure has been constantly changing and adjusting, and various uncertainties have occurred, which has intensified the Policy complexity. At present, my country's central bank's interest rate control, the monopoly, risk constraints, non-profit constraints and high concentration of management authority of state-owned commercial banks, and the pessimistic economic expectations of enterprises and individuals have all become factors that affect the effectiveness of monetary policy.

Since 1998, our country has implemented active fiscal policies for several consecutive years, using national debt funds to carry out key construction, which has effectively stimulated economic growth, inhibited the trend of deflation, and accelerated the adjustment of the economic structure. At the same time, it implemented a prudent monetary policy and most of the time carried out expansionary operations in terms of money supply, which strongly supported the implementation of proactive fiscal policies and promoted economic development. By 1999, deflation basically stopped and the economy returned to a growth rate of 8%. It can be said that China's macroeconomic policies after 1997 basically conformed to the logic of economic theory and the requirements of economic reality. The question is, after China's economic growth rate reached 9.1% in 2003 and thus entered the rising stage of a new round of economic cycle, what kind of direction should be implemented in macro-control?

At present, my country's economy is not overheating across the board, but has obvious local overheating characteristics. Investment in some industries and regions is growing too fast, and resource bottlenecks are becoming more and more obvious. In response to these contradictions and problems in the national economy, the original proactive fiscal policy is not conducive to controlling the excessive growth of fixed asset investment and easing the pressure of inflation. On the contrary, it is conducive to increasing the imbalance in the ratio of investment and consumption, forming a reverse adjustment. Therefore, the direction of policies must be adjusted in a timely manner to adapt to changes in the economic situation.

Fiscal policy and monetary policy, as two important policies for national macro-control, have different mechanisms, directions and applicable conditions, and cannot be substituted for each other. Generally speaking, the administrative time lag of monetary policy is shorter than that of fiscal policy, but the characteristic of fiscal policy is that once the policy measures are determined, their impact is more direct and rapid than monetary policy, which needs to gradually unfold through the transmission mechanism. In terms of the role of expansion and contraction of aggregate demand, due to the direct role of fiscal policy, it plays a prominent role in overcoming insufficient demand and promoting economic acceleration, while monetary policy plays a powerful role in restraining currency growth and controlling inflation. .

Our country is currently facing situations such as excessive investment growth, local overheating, and huge inflationary pressure. Continuing to implement proactive fiscal policies will not only fail to alleviate the deep-seated contradictions in economic life, but will also aggravate the heating of the economy. However, policy transformation It should not be too fast, but should adopt a relatively neutral policy.

In terms of the coordination of the two major policies, because when the economy is overheating, fiscal policy is often less effective than monetary policy in order to suppress excessive demand and overcome inflation and economic bubbles through tightening macroeconomic policies. Therefore, we should focus on monetary policy, rationally select policy objectives, policy tools and the direction of policy subjects, and form a discretionary policy mechanism that closely cooperates with fiscal and monetary policies.

With the continuous deepening of domestic economic development, the advancement of my country's financial reform, and the acceleration of economic globalization, the government must timely adjust the goals and tools of fiscal and monetary policies accordingly. On the other hand, under the influence of external factors such as psychological expectations, political environment, and scientific and technological progress, there is still great uncertainty in the short-term effects of fiscal and monetary policies. Therefore, sooner or later, the policies proposed today will be inappropriate. This is an inevitable rule that the economic situation determines policy adjustments. Our ultimate goal is not to find the only policy measure suitable for China's situation, but to assess the situation, proactively use fiscal and monetary policies and other tools, and truly make discretionary decisions on fiscal and monetary policies to continuously and stably promote the development of the market economy. develop.

References:

[1] Liu Jinquan, Research on the Effectiveness of Monetary Policy and Asymmetric Banking [J]. Management World, 2002 (3)

[2] Zhang Xuegong, China’s Monetary Policy: Stability and Discretionary Choices [J]. The Economist, 2006 (3)

[3] Li Guojiang, The Asymmetry of China’s Monetary Policy and the Effectiveness of Macroeconomic Policy Combination [J]. Journal of Yunnan University of Finance and Commerce, 2004 (6)

[4] Shao Guohua, Analysis of the Transmission Mechanism of my country’s Monetary Policy and the Effectiveness of Monetary Policy [J]. Theoretical Discussion, 2005 (1)

[5] Cui Zhu, On the introduction and coordination of fiscal and monetary "dual stability" policies [J]. Theoretical Journal, 2005 (8)

[6] Cui Jianjun, On ways to improve the effectiveness of China's monetary policy[J]. Journal of Henan Financial Management Cadre College