Empirical Study Of The Dynamic Trend And Factors Of M₂/GDP In China

Since the reform and open policy began in 1978, the ratio of M₂/GDP in China presents the trend of escalation continuously. It2005. Such growth situation was history. The attitude of theorists from the affirmation of the fast unprecedented grew in the from 0.32 in 1978 to 1.65 in various countries economic a land decision-makers to has transformed marketability and the monetization performance in 1990's into the concern regarding the reason of the growth of the ratio which involved the system problems and the high financial risk in China's economy. The economist has produced own explanation from each kind of angle. In a framework of monetary economics, M₂/GDP contains the functional relationship between the national income and the money supply and demand. Its level and the change is decided by the money demand, and at the same time reflects the fact of money demand level's rising unceasingly. Except that outside long-term trend, China's M₂/GDP also assumes the counter cyclical change tendency.The reason lies in the money demand which causes by the discrete motive have the characteristic of counter cyclical undulation. In the world wide scale, the nationality comparison indicated there is no standard level of M₂/GDP among the various countries (areas), but China is also one of the countries (areas) with quite high M₂/GDP. In the past more than 20 years, China's M₂/GDP has escalated rapidly. The reasons for that are: from the angle of money structure, the ratio of Quasi-money/GDP has been rising rapidly; from the angle of economy, the inhabitant income and payout has changed greatly during the economy transformation, the inhabitant savings ratio has been comparative high due to the incompletely necessary reform, the financial market has been developing so slow and there has been some passive scale in monetary policy operation. As the essential reason of the rapid growth of M₂/GDP is the institution changes during economy transformation, it must be resolved comprehensively from the angle of deepening the reform. In this article, in the light of the M₂/GDP of China reaching an unusually high point, data from 1978 to 2006 and the time-varying parameter model (TVPM) are used to make empirical study the factors of china'M₂/GDP. The main conclusion is that there are positive and negative effects of the economic boom for M₂/GDP; the saving rate, debt and budget deficits are a push that prompts M₂/GDP rise; money circulation rate can inhibit M₂/GDP rise, but the validity is weakened gradually. At last of this article, some policies proposals are supposed for the further reform for more equal and affiant running of our economy.