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Measurement of Performing Space for China’s Monetary Policy and Its Implications
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TitleMeasurement of Performing Space for China’s Monetary Policy and Its Implications  
AuthorGao Qian and He Rong  
OrganizationUniversity of International Business and Economics; Beijing Foreign Studies University; 
Key WordsCircular Flow of Income Model;Performing Space for Monetary Policy;Monetary Policy efforts; The Reserve Requirement ratio;Leakage Effect 
AbstractIt’s essential to master the strength of monetary policy issues fitly and minimize the policy over-shooting risk in adapting monetary policy, so we should study on applying monetary policy at great length. Based on Circular Flow of Income Model of national economy, using RRR (Reserve requirement ratios) to measure the performing space for monetary policy, this paper intends to build an analytical framework and establish the theoretical formula from analyzing monetary control process and solutions for leakage effect in monetary economy. According to the formula, the paper calculates the upper limit of performing space for monetary policy in China since 1993 and conducts an empirical research by considering the monetary policy efforts. There are four conclusions based on theoretical and empirical research: First, theoretically, we find there exists an upper limit on performing space for monetary policy; secondly, the upper limit will be affected by factors such as financing structure; thirdly, the upper limit fit for China’s recent national economy is 41% measured by RRR (Reserve requirement ratios); lastly, the performing space for monetary policy can influence the monetary policy efforts. 
Serial NumberWP130 
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