Comparison Between Quantity-based and Price-based Monetary Policies in China under the Background of Interest Rate Liberalization

Monetary policy serves as a crucial means for the country to regulate the macroeconomy and maintain financial stability. In the context of interest rate liberalization, it is of great significance to explore the transmission mechanism and effectiveness of China’s monetary policy. Using the Vector Error Correction Model (VECM), this paper takes 2016 as a key demarcation point and analyzes different periods against the backdrop of interest rate liberalization. The research finds that with the advancement of interest rate liberalization, the regulatory capabilities of both price-based and quantity-based monetary policies have been continuously strengthened. In terms of output, appropriately implemented price-based monetary policy exhibits superior regulatory effects, while quantity-based policy performs better in maintaining price stability. This implies that China cannot yet abandon quantity-based intermediary targets at this stage.