Analysis of the Effectiveness of Current Monetary Policy Abstract This paper combs the research literature on the effectiveness of monetary policy in Chinese and foreign academic circles since 1930s, and draws the conclusion that whether monetary policy can effectively play a regulatory role depends not on monetary policy itself, but on the environment and conditions in which it plays a role. In the period of deflation, China's monetary policy can make a difference. The key is to improve the operating environment of the national economy and smooth the transmission channels of monetary policy. Keywords effectiveness of monetary policy Abstract: This paper has been combined with the research literature on the effectiveness of monetary policy in Chinese and foreign academic circles since 1930, and on this basis, it is concluded that the effectiveness of monetary policy in playing a regulatory role does not refer to the monetary policy itself and the environment and conditions in which it plays its role. China's monetary policy during deflation can make a difference. The key to improve the operation of national economy is the smooth transmission channel of monetary policy. Keywords: monetary policy effectively responds to the financial crisis in Southeast Asia. The China government has implemented a proactive fiscal policy and a prudent monetary policy for five consecutive years since 1998. This move has played a great role in stimulating domestic demand and economic growth, and fully demonstrated the great power of "Shuang Mu propping up the sky" in times of crisis. Now, with the increasing dependence of the central government on debt, the diminishing investment effect of large-scale financial infrastructure projects and the emergence of "crowding out effect", fiscal policy should gradually fade out of the historical stage and turn to monetary policy to undertake the historical task of starting domestic demand and promoting economic growth alone. Therefore, discussing the effectiveness of China's monetary policy is not only of theoretical significance, but also of great practical significance. The research results of western economists on the effectiveness of monetary policy, as a "stone from other mountains", can provide reference for China to formulate and implement monetary policy. China's theoretical research results on the effectiveness of monetary policy may be more suitable for China's national conditions, which is expected to provide theoretical support for the operation of monetary policy. Second, the debate about the effectiveness of monetary policy in western economics. Monetary policy really played a macro-control role after the Keynesian revolution in the 1930s. Keynesians' understanding of the role of monetary policy has a process from conservative to radical. Keynes himself preferred fiscal policy and attached great importance to it. Keynes pointed out in his masterpiece "General Theory of Employment Interest and Money", "Personally, I now have some doubts about how much success can be achieved by manipulating interest rates only by monetary policy. The state can look further and calculate the marginal efficiency of capital from the perspective of social welfare, so it is hoped that the state will take more responsibility for direct investment. " Although Keynes preferred fiscal policy, his research on economics all his life still focused on the theory of monetary policy to stimulate economic growth, and he was famous for the research results of monetary and financial theory. Therefore, Keynes's choice of fiscal policy and monetary policy is by no means an "either-or" attitude. In fact, Keynes also strongly advocated the implementation of cheap-money policy to increase effective demand and promote full employment. Keynes pointed out that "the amount of effective savings depends on the amount of investment, and encouraging investors within the limits of full employment is low interest rates." Therefore, we'd better refer to the marginal efficiency table of capital and reduce the interest rate to a level where full employment can be achieved. ""Of course, when the interest rate falls, it is easy to strengthen the propensity to consume. "It can be seen that Keynes did not ignore monetary policy, but believed that monetary policy was not as direct and effective as fiscal policy in increasing effective demand during the economic recession. This understanding was further elaborated by later Keynesians and improved and strengthened. Known as "Keynes of America", Hansen A.HHansen likes fiscal policy as much as Keynes. Hansen once said, "Money weapons can indeed be effectively used to prevent economic expansion. "This shows that in the period of economic expansion, tight monetary policy can effectively curb economic overheating. Hansen also pointed out that "the economic depression in the 1930s provided ample evidence that it was not enough to restore economic growth only through cheap monetary expansion. "This shows that during the economic depression, the role of expansionary monetary policy in stimulating economic growth is limited. This shows that Hansen has realized the asymmetry of monetary policy. Later Keynesians, such as Samuelson, Paul A Samuelson and Solo Robert. Solo still regards himself as an "orthodox Keynesian school", but they think that Keynes underestimated the negative impact of expansionary fiscal policy, so he prefers monetary policy in theory. It is they who named and perfected the Phillips curve, believing that there is a stable substitution relationship between the rate of price increase and the unemployment rate, and the government can completely choose a suitable combination between the unemployment rate and the rate of price increase, so that both of them can reach a socially acceptable level and achieve macroeconomic goals such as economic growth and balance of payments. Nordhaus's Samuelson and William D. Nordhaus pointed out in their book Economics, which is popular all over the world, "In the early days of the Keynesian Revolution, some macroeconomists were full of doubts about the effectiveness of monetary policy, just as they were full of confidence in the newly discovered fiscal policy. But in the past 20 years, the Fed system has played a more active role and proved its ability to slow down or accelerate economic development. " "At present, both monetarism and Keynesianism tend to think that the stable economic policy of the United States should be implemented mainly through monetary policy. "James Tobin, a famous American Keynesian and one of the main representatives of the" Neoclassical Comprehensive School ",also asserted the importance of monetary policy. Tobin pointed out that "almost no one-of course, no practitioner or supporter of new economics-will think that money is irrelevant and monetary policy has nothing to do with nominal gross national product". He even asserted that "the standard neo-Keynesian theory in the United States, that is, the neo-classical comprehensive school I mentioned earlier, has believed that money plays an important role since at least 1950, that is, long before the rise of monetarism. At least since 195 1 the Ministry of Finance signed an agreement with the Federal Reserve System, the government has formulated policies based on this view. With the gradual deepening of Keynesians' understanding of the role of monetary policy, they put forward the monetary policy proposition of "adjusting against the economic cycle" and "choosing according to the camera". However, the long-term practice of short-term effects of policies has made Keynesianism face severe challenges from stagflation reality after experiencing its glory in the 1950s and 1960s. Monetarists, that is, the monetary school, are the opposite of Keynesian school. Its most striking feature is the emphasis on "money is the most important". Milton. Friedman, its representative, believes that monetary policy has three functions: "Monetary policy can prevent money itself from becoming the main source of economic fluctuations", "The second function that monetary policy can play is to provide a stable environment for economic operation-to continue to use Mill's metaphor is to make the monetary policy machine run smoothly" and "Monetary policy can help offset major fluctuations from other aspects in the economic system." Friedman's monetary policy has only one function in essence, that is, to stabilize the economy. This shows that the monetary school has a more positive view of the role of monetary policy than the early Keynesian school, but it is not as radical as the later Keynesian school. It emphasizes that the role of monetary policy is only to stabilize the economy, but does not discuss whether it affects employment and output. The role of Friedman's monetary policy in stabilizing the economy is based on his economic philosophy of "restrictive government intervention in the economy", which is in the same strain as the traditional creed of the early Chicago School. According to Friedman, the consumption function is stable. The stability of consumption function determines the stability of money demand, which determines the stability of money supply. Adapting to the stability of money supply, its monetary policy proposition is naturally the so-called "single rule". This "single rule" is in sharp contrast with the Keynesian school's monetary policy proposition of "going against the wind". However, the monetary policy proposition of "single rule" gives people the feeling of "changing with the constant" and tends to be fixed and stylized. In fact, the "single rule" monetary policy is difficult to fully adapt to the complex and changeable economic operation reality. If Friedman's evaluation of the role of monetary policy is similar to that of later Keynesians without distinctive features, his views on the effectiveness of monetary policy deserve our attention. Friedman pointed out that "there are great differences in the criteria for evaluating monetary policy. Some people think that the evaluation of monetary policy should pay attention to the situation of money market, interest rate and money quantity, while others think that the employment situation itself should be the general basis for measuring monetary policy. " After summing up his own views, Friedman put forward his own criteria for evaluating monetary policy. "If the monetary authorities take the interest rate or the current unemployment rate as the direct criterion for evaluating policies, it will be like a spaceship that has wrongly chosen the orientation of the earth, and no matter how sensitive and accurate its navigator is, it will eventually lose its way." "I think that a certain amount of money is currently available, the best, the direct indicator or standard of monetary policy. -and I believe that compared with the practice of choosing the price level, the harm caused by choosing a specific amount of money is much less. " This shows that Friedman believes that the criterion for evaluating the effectiveness of monetary policy is not interest rate, unemployment rate and price, but money supply. The school of rational expectation holds a negative attitude towards the role of policy, except monetary policy. Robert E. Lucas, one of the main representatives of Lucas' school of rational expectation, once put forward the famous "policy ineffectiveness proposition". He pointed out, "When the expansionary monetary policy is repeatedly implemented, it can no longer achieve its own goals. The disappearance of the driving force has no stimulating effect on production. It is expected that production will expand, but the result is inflation rather than anything else. " Obviously, the rational expectation school completely denies the role of monetary policy. In fact, the school of rational expectation is advancing along the line of monetarism, especially according to Friedman's view that the capitalist economy itself has a strong trend of automatic stability. Therefore, the school of rational expectation is also called "neoclassical macroeconomics" and "new monetarism" or "second monetarism". If monetarists also admit that aggregate demand management policy, fiscal policy and monetary policy can be used to affect short-term output and employment level, then the "policy ineffectiveness proposition" of rational expectation school completely denies the short-term effect of aggregate demand policy. So Lucas went further than Friedman on the road of laissez-faire. Supply-side economics is "classical economics in a modern coat". They worship Adam Smith's economic liberalism and Seth Law, so they are indifferent to monetary policy and its role. In order to answer the so-called "crisis of Keynesian theory" in 1970s, neo-Keynesian economics appeared in 1980s, and neo-Keynesian economics began to criticize neoclassical macroeconomics' total denial of Keynesianism. Neo-Keynesians believe that neoclassical macroeconomics is not a theory about people's real life world, and its research method is only a mathematical concept far from the objective economic world. Economic theory should be suitable for the real world, the real world system and the real behavior. Therefore, the revival of Keynesianism is inevitable. Alan Blind, a neo-Keynesian, pointed out that "macroeconomics is in another revolution, which is equal to the reappearance of Keynesianism, but with a more rigorous theoretical style". Paul. The famous neo-Keynesian Krugman wrote The Return of Depression Economics. Krugman pointed out that "depression economics, that is, economics that specifically discussed the problems faced by the world economy in the 1930s, has returned to the historical stage". "Depression economics has returned. What does this mean? In essence, it means the first problem of macroeconomic demand management in two generations, that is, private expenditure is not enough to make use of existing production capacity, which has increasingly become an obstacle to prosperity in most parts of the world. " Obviously, the global deflation shadow at the turn of the century provides a broad stage for Keynesian economics to shine again. Judging from the practice of global monetary policy, after the Second World War, western capitalist countries generally implemented Keynesian expansionary fiscal and monetary policies, which played a great role in repairing war wounds and promoting economic growth. At the end of 1960s, the western world entered the stagflation quagmire because of its long-term pursuit of Keynesian policies, and various economic schools emerged to challenge the authoritative position of Keynesianism. Western economic circles entered the "Warring States Period", and countries such as Britain and the United States also changed their ways and pursued the policy propositions of monetary school and supply school. At the turn of the century, the global economy is facing the pressure of deflation, and the era when depressed economics began to return to Keynesian "unification" seems to have arrived again. From the perspective of global practice, Keynesian "discretionary" monetary policy is objective whether it is effective or not. Three. Discussion on the Effectiveness of Monetary Policy in China's Economics If the publication of Keynesian General Theory is taken as the theoretical starting point of modern monetary policy, monetary policy has a history of more than 60 years, and the People's Bank of China only exercised the function of central bank exclusively in 1984, so the real monetary policy practice in New China is less than 20 years. Before the establishment of the secondary banking system, China implemented a unified banking system integrating the central bank and commercial banks. So people also discussed monetary policy at that time, and mixed it with credit policy and even financial policy, which were called monetary credit policy and monetary financial policy. Strictly speaking, these formulations are not accurate enough. Since 1984, China has experienced anti-inflation 1984- 1997 and anti-deflation 1998, and accumulated some experience in monetary policy practice. Correspondingly, the academic circles in China have also had a heated discussion on monetary policy. Especially since 1997 Southeast Asian financial crisis, the discussion on monetary policy and fiscal policy has become one of the academic hot issues. Here is a comment on whether monetary policy can play a role, why it is difficult to play an effective role, and how to improve the effectiveness of monetary policy. Whether monetary policy can play a regulatory role is based on incomplete induction. There are three main viewpoints in China's economics. The first view is that China's role in monetary policy overemphasizes or even denies the effective role of monetary policy. The main representatives of this view are Professor Huang Da from China Renmin University and Researcher Xie Ping from China People's Bank. Huang Da thinks, "We observed the modern macroeconomic policy from top to bottom in the mid-1980s. As far as megatrends are concerned, it is overvalued. For example, there was a popular view at that time that as long as the currency was controlled, a relatively relaxed economic environment could be created for construction and reform. This overestimation is clearly reflected in the contraction of 1989. The implementation of tight monetary policy seems to be too single-handed, and the attempt to reverse the downward trend relies too much on the "start" of the lever of expanding money supply. The impression that monetary policy is handy is a very favorable tool. However, practice has proved that overestimating its efficiency can not achieve the envisaged goal, or it will bring great side effects in strong implementation. " "In our case, due to the drastic changes in the balance of power between finance and finance, centralized financial resources tend to be extremely weak, and financial power has become so strong that monetary policy has become the dominant position in macroeconomic regulation and control. ? 6? 7? 6? We tend to overestimate the effectiveness of monetary policy, which is not only the reason why we tend to pay too much attention to its effect when we start to apply macro policy, but also the background of abnormal contrast between fiscal and financial strength. Obviously, the combination of monetary policy and fiscal policy has been noticed, but it is difficult for fiscal policy to play a coordinating and buffering role because there is little room for financial funds to be mobilized. " If Huang Da's conclusion is that according to China's macro capital allocation pattern, the role of monetary policy is "too prominent" and tends to be overestimated, then Xie Ping holds a negative attitude towards the effectiveness of monetary policy. Xie Ping pointed out, "It is very difficult to achieve multiple goals of monetary policy in a short period of time. Due to the contradiction between multiple goals, monetary policy is often at a loss. " "In the face of deflation, can monetary policy be as quick and effective as curbing inflation? The answer isno. " The second view is that the role of monetary policy is asymmetric, that is, controlling inflation is effective and controlling deflation is weak. The representatives of this view are Professor Wu Jun from the University of International Trade and Professor Liu Jinquan from Jilin University. In his monograph "Austerity and Expansion-Choice of Economic Macro-control Mode in China", Wu Jun drew a conclusion through research: "China's macro-control practice in the late 1980s can also prove the strong effect of monetary policy in restraining prices and the weak effect of fiscal policy in restraining prices during the period of economic expansion." "After entering the 1990s, China's macro-control practice can prove the strong effect of fiscal policy in restoring economic growth and the weak effect of monetary policy during the economic recession." Through empirical research, Liu Jinquan reached a conclusion basically consistent with that of Wu Jun. Liu Jinquan pointed out, "We found that in China's economic operation, the slowdown effect of contractive monetary policy on the economy is greater than the acceleration effect of expansionary monetary policy on the economy." The third view holds a positive attitude towards the effectiveness of monetary policy. The representatives of this view are Professor Fan Cong of Nanjing University and researcher Dai Genyou of China People's Bank. Fan Conglai believes that "China has not fallen into a liquidity trap. Interest rate elasticity of investment and consumption exists, and the conditions for monetary policy to play its role are available. During the period of deflation, monetary policy can still make a difference. " Degen pointed out, "In fact, in theory, monetary policy is the total demand of society, and any active fiscal policy may fail if there is no corresponding monetary policy." Therefore, it is reasonable to say that the role of fiscal policy in recent two years is largely the result of actively cooperating with monetary policy. "In short, Fan Conglai and Deccan believe that even in the period of deflation, the role of monetary policy is still huge. Second, why is the current monetary policy difficult to play a role? Why is it difficult for China's monetary policy to play an effective role? Many scholars have analyzed this from different angles. Researcher Xie Ping of the People's Bank of China believes that the main reason why the current monetary policy can't play its role effectively is that the operation of monetary policy faces nine challenges, namely, multi-objective constraints, contradiction with supporting the development of the capital market, deflationary pressure, blocked transmission mechanism of monetary policy, ineffective monetary credit plan, small choice of monetary policy tools, unpredictable monetary multiplier and currency circulation speed, international coordination of monetary policy, and role conflict between monetary policy and lender of last resort. Professor Zeng of Southwestern University of Finance and Economics believes that the reason why China's loose fiscal policy and monetary policy can't play their roles at present is that the role of policies is offset. Specifically, the expected psychology of the public, the factors of economic system, the side effects of policy operation mechanism and the "crowding out effect" of policy offset the role of monetary policy. Li Xiaoxi, a researcher at the Research Office of the State Council, believes that the current lack of vitality of the national economy is mainly not a problem of money supply, but an institutional obstruction of the transmission mechanism of monetary policy. It is characterized by the lack of vitality of conduction mechanism and object, narrow path, slow speed, distorted power and signal, and unsatisfactory environment. Dr Qiu of Wuhan University also believes that the effect of China's monetary policy in recent years is not ideal. The problem is that there are some obstacles in the transmission mechanism of China's monetary policy, such as imperfect credit system, poor financial organization structure, obstacles in property rights system and interest mechanism, and management deviation. Liu Constitution of China Shenzhen Comprehensive Research Institute believes that in recent years, the central bank has made major policy adjustments according to the changes in the macroeconomic situation, and the monetary policy has changed from moderately tight to moderately relaxed. However, its overall effect is not obvious, and the situation of weak economic growth and continuous price decline has not been fundamentally changed. What's more, since the second half of 1998, the money supply has continued to rise and prices have continued to fall. There are indications that China's economy has fallen into a "liquidity trap" similar to that of the Japanese economy. According to the above-mentioned China scholars' discussion on the factors affecting the effectiveness of monetary policy, they mainly focus on the transmission mechanism of monetary policy and the operating environment of the national economy. 3. Ways to improve the effectiveness of monetary policy In view of the problems existing in the operating environment of the national economy and the transmission mechanism of monetary policy, many scholars have put forward ways to improve the effectiveness of monetary policy from different analytical angles. Professor Zeng believes that the key to continue to play the role of fiscal and monetary policy lies in emancipating the mind, providing a policy environment, enhancing public confidence in economy and finance, and identifying the starting point and focus of policy operation. Professor Fan Zong believes that monetary policy can make a difference in anti-deflation, and a "positive monetary policy" should be implemented in the period of deflation. A proactive monetary policy refers to moderately expanding the money supply. On the one hand, it avoids credit deterioration and excessive tightening of currency circulation during economic recession, on the other hand, it stimulates economic recovery to actively cooperate with the implementation of other expansionary fiscal policies. Li Xiaoxi and Yu Ming believe that improving the operational efficiency of the monetary policy transmission mechanism can start from the following aspects: properly handling the relationship between preventing financial risks and expanding bank credit, expanding the supply of base money, exploring new channels for the supply of base money by the central bank, expanding the floating range of loan interest rates of commercial banks, accelerating the process of interest rate marketization, improving the method of window guidance, and raising the interest rates of commercial banks. Financial support for market-oriented enterprises will accelerate the reform of investment and financing system, create conditions to gradually transform wholly state-owned commercial banks into state-controlled joint-stock commercial banks, change the situation that the central bank is the only one to implement monetary policy, further explore rural financial markets, improve the financial organization system, further reform the money market system, and establish a unified, efficient and flexible money market. Qiu put forward the method of unblocking the transmission channel of monetary policy. First of all, we need to understand the status and role of monetary policy transmission channels. Secondly, the operation of dredging channels is to regulate the behavior of banks and financial institutions. Secondly, we should consider solving the core of the transmission mechanism of money supply and demand-the construction of social credit system. It can be seen that Chinese scholars believe that the factors affecting the effectiveness of monetary policy are the transmission mechanism of monetary policy and the operating environment of national economy, and their countermeasures are also focused on unblocking the transmission channels of monetary policy and improving the operating environment of national economy. Four. In summary, the following conclusions can be drawn: 1. Since the Keynesian Revolution in 1930s, western economists have had a heated debate on the effectiveness of monetary policy, and no consensus has been reached. However, the evolution of the theory has gone through a process of "affirmation-negation-affirmation". Keynesians affirm the effectiveness of monetary policy, monetarists affirm the short-term effect of monetary policy and deny the long-term effect of monetary policy. The school of rational expectation completely denies the effectiveness of monetary policy, while the neo-Keynesians fully affirm the effectiveness of monetary policy and believe that the depressed economics in the 1930s has returned. This is probably the evolution of western economists' understanding of monetary policy. 2. The real monetary policy operation in China started with the establishment of the 1984 secondary banking system. Taking 1997 Southeast Asian financial crisis as a watershed, China's monetary policy operation has experienced both positive and negative practices since 1984- 1997 and 1998, and gained some experience. Accordingly, China economists have probably formed three views on whether monetary policy can effectively play a regulatory role, which can be described as negative, asymmetric and completely positive. The reason why monetary policy can't play its role effectively is that there are problems in the operating environment of the national economy and the transmission mechanism of monetary policy. The way to improve the effectiveness of monetary policy is to improve the operating environment of national economy and smooth the transmission channels of monetary policy. 3. From the evolution of Chinese and foreign monetary policy theories, it seems that we can draw the conclusion that monetary policy is monetary policy. The effectiveness of monetary policy does not depend on monetary policy itself, but on the environment and conditions in which monetary policy plays its role. Monetary policy plays a more important role in controlling inflation and controlling prices. This article comes from China Net Model fw789. Monetary policy plays a less regulatory role in controlling deflation and preventing economic recession. This can be described as the asymmetry of monetary policy. Of course, economics is a practical knowledge. It was born to meet the needs of the times and died for the abandonment of the times. This is the fate of economic theory and economists. Therefore, the advantages and disadvantages of monetary policy theory seem to lie not in the monetary policy theory itself, but in the choice of the times. 4. The theoretical study of monetary policy in western economics has a strong color, and some even rose to the height of academic theory and entered textbooks and theoretical history. China economists' research on monetary policy mainly focuses on reality, focusing on the discussion of practical problems. This may be due to the different historical lengths of Chinese and foreign monetary policy practices. At present, Chinese and foreign economists' research on the effectiveness of monetary policy is far from accurate. It seems that there is still a long way to go to analyze the effective value of monetary policy as clearly as the contribution of production factors such as labor and capital to economic growth in the economic growth model.