Different Effects of Monetary Policy on Rural and Urban Prices

With VAR model and impulse response function, this paper measures the impact of monetary policy shocks on urban and rural prices and finds that significant different effects exist. The result shows that M0 has a long term lasting effect on rural consumer price index while M1 and M2 have no long term lasting effect on the index. At the same time, M0, M1 and M2 all have long term lasting impact on the urban consumer price index. The time lag of monetary policy on rural consumer price index is shorter than that of monetary policy on urban consumer price index. In addition, the impact of monetary policy on urban consumer price index is stronger than that on rural consumer price index. Finally, the paper explains the causes of the difference and makes some recommendations.