The Transmission Mechanism of Monetary Policy through Credit Channel in China: Evidence from VAR Model

This is an empirical investigation of how monetary policy has been transmitted into the macro-economy of China through credit channel. It forms part of a work on building a vector auto-regression (VAR) model. The model reveals that the Chinese monetary system follows basically three types of effective monetary policy instruments: interest rates, the required reserve ratio, and a direct quantity control rule of the base money supply. Model also show that these instruments are most effective in affecting monetary aggregates and prices, and credit channel is primarily monetary policy transmission channel in china.