Abstract: Combined with the monetary policy and the special system background, examines the smooth effect of cash holdings on innovation investment, found that: at the period tight money, enterprises will use cash to smooth innovation investment, and the higher the external financing dependence of industry or enterprise, the stronger the smooth effect; the smooth effect have significant difference between the government and private enterprises, but this difference exists only in the period of monetary tightening, and the more higher the external financing dependence, the stronger the difference; the smooth effect is more significant in areas with lower levels of financial development; financial development can effectively alleviate the credit discrimination, and then reduce the gap of the smooth effect between in them. This result provides a new research perspective for the understanding how enterprises maintain the sustainable growth of innovation investment in the context of the transition economy, and from the perspective of monetary policy, provide a new evidence for the role of regional financial development ease financing constraints and credit discrimination.

Key words: monetary policy, financial development, dependent on external financing, credit discrimination, innovation smoothing