The paper tries to make a study of effect of interest rate transmission mechanism of Chinese Monetary policy. VAR model is established to conduct an analysis of impulse response function and variance decomposition. Empirical studies demonstrate that it is hard for interest rate transmission channel of Chinese monetary policy to play a role in the short term while it will play a part in the long run, and long-term effect of Chinese monetary policy is relatively better, which further indicates that effectiveness of monetary policy of central bank largely depends on whether interest rate transmission channel of monetary policy is smooth or not.
