How does the Property Structure Influence the Transmission Effect of Monetary Policy

Abstract

In recent years, the new era of China’s economy has entered a new period of reform and opening up, and the economic structure is undergoing a comprehensive and profound historic changes.Further reform of the state-owned economy is an extremely important part of this process. Obviously, given the position of the state-owned economy in China’s history and reality, this major change in economic property rights is bound to have a significant and far-reaching impact on many aspects of China’s future economic structure and development.This paper examines the economic effect of changes in the share of the state-owned economy from the perspective of the effect of monetary policy regulation.The results show that as long as the new structuralist principle of efficient market and effective government coupling is adhered to, the increase in the share of the state-owned economy can effectively weaken some obstacles in the effective transmission of monetary policy, which is significantly different from the traditional view.Specifically, from the perspective of constructing a price-based transmission mechanism for monetary policy, the increase in the share of the state-owned economy does weaken the counter-cyclical control effect of monetary policy by increasing economic frictions, but at the same time, it should be noted that the strengthening effect of the state-owned economy on financial frictions has not reached the degree of structural mutation.And in the process of economic transformation where serious frictions exist, the state-owned economy also acts as a stabilizer in the face of external shocks and weakens the policy over-regulation effect of monetary policy transmission through credit channels. Since the state-owned economy is an important point of convergence for the effective coupling of active government and efficient markets, there is a reason to believe that further mixed-ownership reforms are a further step in the new search for a strategy to “build on strengths and avoid weaknesses” in the Chinese model of organic convergence of active and efficient markets, so that we can expect some of the frictional factors hindering the effective transmission of monetary policy to be further weakened in the future.In contrast to the focus of previous research, this paper focuses on the examination and resolution of the following issues:Under the condition of an increased share of the state-owned economy, is the counter-cyclical control effect of monetary policy strengthened or weakened through policy instrument shocks? What role do the interest rate channel and the credit channel each play in leading to this outcome? In order to better achieve the objective of monetary policy to iron out economic fluctuations, should the monetary authorities choose money or interest rate as the intermediary target? What are the economic logic and the implied policy implications behind these results?