Several Influence Factors Of Monetary Liquidity Change Research In China

The burst of subprime crisis in United States triggered the liquidity surplus into liquidity shortage in a short period in the worldwide, and part of the countries even fell into the liquidity trap. Liquidity and its changing received extensive attention and further research. The paper has analyzed some mainly factors which influence the changing of liquidity in China from the perspective of monetary supply and demand combined with the characteristic of transition and open economy.This paper contains7chapters, and the first chapter is an introduction. The second chapter, as a basis of following chapters, briefly analyzes the meaning, the measurement methods of liquidity, the characteristic of monetary liquidity and the main factors which influence the changing of liquidity. Since the full liberalization of interest rate has not realized in China, the monetary liquidity can only be used to measure by monetary overhang, MIGDP, excess money growth rate etc. The measurement of MIGDP and excess money growth rate show that there is an entirely monetary surplus and a cyclic changing in China since last century90’s. The changing of monetary liquidity is determined fundamentally by monetary supply and demand. In addition to the general factors which influence monetary supply and demand, there are some other factors which may also affect the monetary supply and demand in China, such as monetary objects, financial markets and international liquidity shock etc.In the third chapter, we have analyzed the relationship between monetary demand and the changing of liquidity. According to the method of Johansen-Juselius cointegration test, we found that the real broad money demand has a stable cointegration relationship with the real output, deposit interest rate, inflation rate, stock index and the NEER of RMB in the long-term. Moreover, the VEC model shows that there is a slowly mechanism that the monetary demand goes close to the equilibrium in China. With the method of monetary overhang, we measured the changing of monetary liquidity in China during1994to2010, and found that the monetary liquidity surplus and shortage appeared in cycle, and during the period of1994to2010, the monetary liquidity experienced an overall shortage and an overall surplus stage. According to the empirical conclusion, there is a stable long-term monetary demand in China, we can deduce that monetary supply may have more impact on the changing of liquidity than monetary demand in China, and there will be a sustained liquidity excess or shortage when monetary supply deviates from its equilibrium.In the fourth chapter we focus on the relationship between monetary final goals and the changing of liquidity. The central bank has followed the principle of double goals in China, price stability and economic growth. We tested the relationship between inflation and GDP growth, and found that there was Granger causality between them since1979. According to the conclusion, we are not able to realize the two objects of price stability and economic growth at the same time. In the monetary policy practice, our central bank converts the two objects of price stability and economic growth according to economic situations, and makes them fluctuate in a given interval. Since the monetary demand function is stable in the long term, the frequent changing of monetary policy between easing and tightening may cause liquidity shortage and excess periodically. All of this can be verified in the monetary policy practice in the recent years.In the fifth chapter, we have concentrated on the relationship between the development of financial market and the changing of liquidity in China. The development of financial market has intercepted the monetary supply and changed the stable correspondence relationship between monetary supply and inflation. Using the VAR model, we found that:the empirical analysis proved that there is a sequence among the increase of monetary liquidity, asset price and inflation, which the increase of monetary liquidity caused the asset price rising firstly and the inflation followed. We still found that there is not a notable correspondence between the growth rate of broad money and inflation in China in the period of2005to2010, and the variation of stock price is one of the important reasons of the changing of CPI, meaning that the conduct is significant from stock price to inflation. The interception of monetary supply by financial market has prolonged the transmission of monetary policy, which may easy to trigger a "liquidity expansion cycle" or "liquidity crunch cycle", and cause liquidity excess or shortage.In the sixth chapter we analyzed how the international liquidity shock causes the changing of liquidity in China. As the dollar, the yen and the euro are the sources of monetary liquidity in the world, they channel up to the periphery countries in forms of the current-account deficit, capital output and financial innovation. Once the three countries encounter liquidity shocks or financial crisis, the excess liquidity will suddenly turn into liquidity shortage, which will pass to the peripheral countries, and cause the global liquidity shortage. From the reforming and opening in China, the policy of encouraging exports and the inflow of foreign capital and it’s currency pegging to the dollar, cause a large number of global monetary liquidity inputting into China through the channels of trade, foreign capital inflow and hot money. With the method of VAR we found that:the monetary liquidity is significantly affected by the quantity of trade, foreign direct investment and hot money. With the increasing of trade surplus year by year, the dollar has turned main currency which input into China. We also found from the empirical proof that the index of M2/GDP between US and China has an approximately same tendency since1998and the monetary liquidity changing in US is one of the reasons for it in China, which is more significant after the subprime crisis. On one hand, the International liquidity importing has substantially increased China’s foreign exchange reserves, which brings a lot of pressure on the central bank; on the other hand, it has changed the structure of monetary base in China, which causes the structural unbalance of the liquidity.As the last chapter of the paper, we make a summary for the paper, raise a series of relevant recommendations, and put forward some problems to be further studied in future.