Abstract
With market development, China’s long-term choice of M2 data as an intermediate target of monetary policy is gradually showing its shortcomings. To find an intermediate target more suitable for China’s financial market, scholars are turning their attention towards social financing data. On this basis, this study establishes vector autoregressive (VAR) models with M2, social financing, and RMB loans as quantitative indicators, the Shanghai Interbank Offered Rate (SHIBOR) as a price-based indicator, and CPI and industrial value added as ultimate targets, during the period 2003-2018. This study also combines the VAR models with the impulse response functions and variance decomposition analyses. The empirical results show that social financing can serve as an intermediate target, while we cannot conclude that it is the best intermediate target of monetary policy. At the present, China should focus on both quantitative and price-based indicators, and gradually shift from the former to the latter.
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