The Empirical Research and the Policy Significance of the “Monetary Neutrality”in China

This paper reviews the literature and the empirical research of monetary neutrality.Via using Granger-Sims Causality Test and Error Correction Model to analyze the relationship among aggregate money supply,output price during 1985～2001 in China,the author find that the aggregate money supply is endogenetic,the changes of money supply affect the price either in long run or in short run,in the short run money is not neutral,while in the long run there exists monetary neutrality.The author argue that monetary policy should aim not at money supply,but at the interest rate,the tartet of monetary policy should be providing a stable monetary environment for the economy.