Abstract: Using a GARCH model and a Markov regime switching model, we measured the fluctuations in China's price-oriented and quantity-oriented monetary policies. Through the Granger causality test, we tested the sensitivity of policy fluctuations to economic fluctuations and built a TVAR model to empirically investigate the threshold effect of monetary policy fluctuations on the results of macroeconomic regulation. The results of empirical investigation showed that monetary policy fluctuations had a dynamic and significant threshold effect on the results of macroeconomic regulation. Specifically, the output effect and price effect of price-oriented and quantity-oriented monetary policies were more significant only when monetary policy fluctuations were below the specified thresholds. On both sides of the specified thresholds, price-oriented regulation was superior to quantity-oriented regulation. To improve the effectiveness, foresight, and flexibility of monetary policies, we recommend that the monetary authorities not only ensure the stability of monetary policies and the delicate balance between policy stability and policy sensitivity, but also accelerate the transformation from quantity-oriented monetary policies to price-oriented monetary policies.

Keywords: Monetary Policy;  Fluctuation; GARCH Model; Threshold Vector Autoregression Model