China’s Monetary Policy Regulation and Financial Risk Prevention: The Study of Effectiveness and Appropriateness

198 Pages·2015·3.73 MB·English

by  Hui Zhou (auth.)

Hui Zhou
China’s Monetary
Policy Regulation
and Financial
Risk Prevention
The Study of Effectiveness and
Appropriateness
China’s Monetary Policy Regulation
and Financial Risk Prevention
Hui Zhou
China’s Monetary Policy
Regulation and Financial
Risk Prevention
The Study of Effectiveness
and Appropriateness
1 3
Hui Zhou
School of Finance
Zhejiang University of Finance
and Economics
Hangzhou
Zhejiang
China
The book is funded by the National Social Science Fund Project “Chinese monetary policy effectiveness,
appropriateness and macro-prudential financial regulation studies” (13FJY001).
ISBN 978-3-662-44092-6 ISBN 978-3-662-44093-3 (eBook)
DOI 10.1007/978-3-662-44093-3
Library of Congress Control Number: 2014944549
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Acknowledgments
Years pass and time flies, recalling the past days, I feel greatly enriched by my
work. Upon completion of this book, I have quite mixed feelings. I have asked
myself several times that why do I stick to my academic life, now the answer is
simple and clear: to keep mentally clean and calm.
I want to give my heartfelt gratitude to all my teachers who have helped and
supported me on my road of life. They include: Prof. Peng Xinglv (Ph.D. super-
visor), Prof. Wang Junhao (president of Zhejiang Institute of Finance and
Economics), Prof. Yang Hua (my postdoctoral supervisor), as well as Prof. Wang
Songqi and Dr. Liu Yuhui (from Chinese Academy of Social Sciences). Their rig-
orous pursuit in academic study, profound knowledge, virtuous and caring char-
acter, active and optimistic attitudes toward life have set role models for me,
bringing endless enlightenment for my life as bacons.
Besides, I want to thank my colleagues and friends as the below: Professor
Wang Qing, Dr. Liu Canhui, Dr. Huang Xi, Dr. Yuan Chuang, Dr. Sun Wei,
Dr. Li Feng, Dr. Long Liang, Dr. Zhai Shu, Dr. Pan Huanhuan, and Dr. Pei Wuwei.
They have given me unyielding help in the process of topic selection, research
idea developing, research approach determining, and literature and data collec-
tion. They have provided me great academic aspiration and contributed much in
the shaping of this book.
Finally, I would like to sincerely thank my wife Zhou Shaoyi and my daugh-
ter Zhou Mozhe, for their tolerance and understanding of a hard-working and
persistent husband and farther. And also I want to express my gratefulness to my
mother who has endured all kinds of hardships to bring me up and my father who
is watching me peacefully in heaven.
v
Contents
1 Literature Review and Research Framework .................... 1
1.1 Literature Review on the Effectiveness of Monetary Policy
Regulation on Economic Growth and Inflation ................. 1
1.2 Literature Review on the Appropriateness of Money Policy
Regulation on Asset Price .................................. 3
1.3 Literature Review on Financial System Risk Prevention
and Regulation .......................................... 5
1.3.1 Literature Review on Systemic Financial Risk Prevention ... 5
1.3.2 Literature Review on Macro-Prudential Regulation
on Financial System ................................ 11
1.4 Research Content and Framework ........................... 13
1.5 Content, Research Method, Academic Innovation, Academic
Value and Limitations ..................................... 15
1.5.1 The Content of This Book Mainly Covers the Following ... 15
1.5.2 Research Methods ................................. 16
1.5.3 Theoretical Innovation .............................. 17
1.5.4 Limitations ....................................... 18
2 Effectiveness Study of Chinese Monetary Policy Regulation
on Economic Growth and Inflation ............................. 19
2.1 Retrospect of Chinese Monetary Policy ....................... 20
2.1.1 Exploration Stage: From Reform and Opening up to 1992 ... 20
2.1.2 Optimation Stage: From 1993 to 1996 .................. 21
2.1.3 Gradual Maturity Stage: Since 1997 ................... 22
2.2 Intermediary Target: An Important Guarantee for Monetary
Policy Effectiveness ...................................... 25
2.2.1 Interest Rate, an Immature Choice ..................... 26
2.2.2 Interest Rate, an Immature Choice ..................... 26
2.2.3 Money Supply, an Ideal Choice ....................... 26
vii
viii Contents
2.3 Empirical Effectiveness Research on China’s Monetary
Policy Regulation on Economic Growth and Price Level ......... 27
2.3.1 Model Establishment ............................... 27
2.3.2 Data Collection and Processing ....................... 29
2.3.3 Basic Statistical Characteristics ....................... 29
2.3.4 Empirical Analysis Based on MGARCH-BEKK Model .... 30
2.4 Conclusions on the Effectiveness of Money Policy Regulation ..... 31
3 Appropriateness Study of Monetary Policy Regulation
on Real Estate Price ......................................... 33
3.1 Real Estate Development and Macro-Control from 1998 to 2013 ... 33
3.1.1 The Development of Chinese Real Estate Industry
and Market ....................................... 33
3.1.2 Government Macro-Control Measures .................. 36
3.2 Research Hypothesis and Quantitative Model Selection .......... 40
3.2.1 Hypothesis Research: Based on the Ultimate Goal ........ 40
3.2.2 Hypothesis Research: Based on the Interest Gaming
Between Central and Local Government ................ 41
3.3 Empirical Analysis of Monetary Policy Impact on Real Estate Price ... 45
3.3.1 Quantitative Model Establishment ..................... 45
3.3.2 Growth Speed Model ............................... 46
3.3.3 Data Collection and Processing ....................... 47
3.3.4 Basic Statistical Characteristics ....................... 47
3.3.5 Empirical Analysis Based on MGARCH-BEKK Model .... 48
3.3.6 Empirical Analysis Based on GARCH Mean
Equation Model ................................... 53
3.4 Research Conclusion and Policy Suggestions .................. 54
3.4.1 Basic Conclusion .................................. 54
3.4.2 Policy Suggestions ................................. 54
4 Appropriateness Study of Monetary Policy Regulation
on Stock Price .............................................. 61
4.1 Development Retrospect of China’s New Capital Market ......... 61
4.1.1 Development of China’s Capital Market in the
Recent Decades ................................... 61
4.1.2 Policy Factors Affecting China’s Stock Market ........... 64
4.2 Monetary Policy Impact on Chinese Stock Market .............. 66
4.2.1 Economic Growth Rate Model ........................ 67
4.2.2 Fluctuation Correlation Model ........................ 68
4.2.3 Data Collection, Processing, and Basic Statistic
Characteristics .................................... 69
4.2.4 Empirical Analysis Based on GARCH Mean
Equation Model ................................... 70
4.2.5 Empirical Analysis Based on MGARCH-BEKK Model .... 71
4.3 Research Conclusion and Policy Suggestions .................. 74
Contents ix
5 Appropriateness Study of Monetary Policy Regulation
on Bond Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
5.1 Development Retrospect of Chinese Bond Market .............. 79
5.1.1 Bond Development—General History .................. 79
5.1.2 Bond Development History—From Product Perspective ... 82
5.1.3 China’s Bond Market Versus Overseas Bond Market ...... 82
5.2 Description of Policies Affecting China’s Bond Market After 2006 ... 84
5.2.1 Affecting Bond Market by Means of Impact
on Money Supply .................................. 84
5.2.2 Adjusting Bond Market by Affecting Market Interest Rate ... 84
5.2.3 Setting Market Access Requirements to Adjust
Bond Market ...................................... 85
5.2.4 Adjusting Bond Issuance Approval Progress
to Adjust Bond Market .............................. 86
5.3 Empirical Analysis Based on Chinese Bond Market ............. 86
5.3.1 Data Collection and Processing ....................... 86
5.3.2 Basic Statistic Characteristics ........................ 89
5.3.3 Empirical Analysis Based on GARCH Mean
Equation Model ................................... 90
5.3.4 Empirical Analysis Based on MGARCH-BEKK Model .... 91
5.4 Policy Suggestions on Improving the Appropriateness
of Monetary Policy Regulation on Bond Market ................ 94
5.4.1 Forward-Looking in Monetary Policy Formulation
and Implementation ................................ 94
5.4.2 Changing Fragmented Regulatory Framework ........... 95
5.4.3 Introducing Government Bond Futures in Due
Time to Widen Interest Rate Derivatives ................ 95
5.4.4 Performing Net Settlement ........................... 96
5.4.5 Vigorously Promoting Innovative Bond Issuance ......... 96
5.4.6 Improving Market Maker System ..................... 97
6 Appropriateness Study of Monetary Policy Regulation
on Futures Market .......................................... 99
6.1 Development Retrospect of Chinese Futures Market ............. 99
6.1.1 Promoting Basic System Construction for Laws
and Regulations and Vigorously Improving Market
Development Basis and Supervision Environment ........ 100
6.1.2 Accelerating Innovation of Commodity Futures
Categories, Financial Futures Market Taken Initial
Shape Smoothly and Soundly ........................ 100
6.1.3 Market Functions Taken Initial Shape and the Capability
to Serve the National Economic Development
Keeping Improving ................................. 100
6.1.4 Transformation in Regulation Ideas and Approaches ...... 101
x Contents
6.2 Monetary Policy Impact on Chinese Futures Market ............. 103
6.2.1 Review of Chinese Monetary Policies (1999—July, 2011) ... 103
6.2.2 Monetary Policy Impact on Futures Market .............. 107
6.3 Monetary Policy Impact on Futures Variety .................... 108
6.4 Empirical Analysis Based on Chinese Futures Market ........... 114
6.4.1 Data Collection and Processing ....................... 114
6.4.2 Basic Statistical Characteristics ....................... 115
6.4.3 Empirical Analysis Based on GARCH Mean
Equation Model ................................... 116
6.4.4 Empirical Analysis Based on MGARCH-BEKK Model .... 116
6.5 Policy Suggestions on Enhancing Monetary Policy
Appropriateness and Perfecting Futures Market ................ 119
7 Study on Chinese Systemic Risk Prevention ...................... 123
7.1 Systemic Financial Risk Measurement ....................... 123
7.1.1 Measurement of Systemic Financial Risk ............... 123
7.1.2 Prewarning of Systemic Financial Risk ................. 124
7.2 Model Establishment and Parameter Estimation ................ 126
7.3 Description and Selection of Financial Risk Prewarning
Indicator ............................................... 128
7.3.1 Risk Prewarning Indicator System ..................... 128
7.3.2 Pressure Index Construction .......................... 129
7.4 Model and Empirical Test ................................. 131
7.4.1 Early Warning Model Test on Currency Crisis ............ 132
7.4.2 Prewarning Model Test on Bank Crisis ................. 133
7.4.3 Prewarning Model Test on Asset Bubble ................ 135
7.4.4 Early Warning on Financial Risks ..................... 137
7.5 Conclusions and Policy Suggestions ......................... 137
7.5.1 Empirical Conclusions .............................. 137
7.5.2 Macro-Policy Suggestions ........................... 141
8 Study on Building China’s Financial Supervision System .......... 143
8.1 Latest Trend of Financial Supervision of Developed Economies
and Enlightenment to China ................................ 143
8.1.1 Main Content of US Emergency Financial Supervision .... 143
8.1.2 Main Content of US Financial Regulation Reform Act ..... 145
8.1.3 Main Content of Pan-European Financial Regulatory Act ... 148
8.1.4 Enlightenment of the New Trend of International
Financial Supervision to China ....................... 152
8.2 Construct China’s Macro-Prudential Regulatory System ......... 157
8.2.1 Connotation and Objective of Macro-Prudential
Regulation ....................................... 157
8.2.2 Components of Macro-Prudential Regulatory System ...... 158
Contents xi
8.3 Empirical Study on China’s Financial Procyclicality
and Its Mitigation System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
8.3.1 Empirical Study on China’s Financial Procyclicality ....... 159
8.3.2 Mitigation Mechanism Analysis ....................... 170
8.4 Conclusions and Policy Suggestions ......................... 174
References .................................................... 181