China's "the New Mystery Of Excess Money"

On the basis of the Fisher equation of exchange, simply, supposing the velocity of money remains unchanged, the increase of money supply will be reflected in increase of price and expansion of economic growth. But since China reform and opening-up, two phenomenons which deviate from theories have taken place. First, the change of price deviates from the change of money supply, which was defined by McKinnon as China's "Mystery of Excess Money", the second is the deviation of excess money supply and economic growth. Based on this, this dissertation will redefine these two deviations as "The New Mystery of Excess Money".Around "The New Mystery of Excess Money", the dissertation is divided into five chapters. In addition to the first chapter, Chapter Two is literature review, mainly including the literature review of "Mystery of Excess Money" and the abnormal high M2/GDP research which designed to show the perspectives, research ideas and research methodologies of this dissertation. Chapter Three is model reconstruction, based on the great development of China's fictitious economy in the 90s, the Fisher equation of exchange has been amended and furthermore, this dissertation analyses the conduction effect of M2â†'Fictitious economyâ†'GDP chain-type, then interpret "The New Mystery of Excess Money". Chapter Four is the empirical analysis, combined with first quarter of 1998-to first quarter of 2009 data, using Eviews 5.0 statistical software to conduct an empirical test, from a quantitative point of view to make an explanation of "The New Mystery of Excess Money". Chapter Five is Conclusions and recommendations:In our country, the continuous development of fictitious economy calls for additional money supply, the fictitious economy absorbs the additional money supply from the real economy. At the same time, the money flowing to the fictitious economy did not produce significant impact on the real economy, resulting in abnormally high M2/GDP. The innovation of this dissertation can be concluded in two points:firstly, the dissertation proposed and defined "The New Mystery of Excess Money", which is different from the definition of Mckinnon's "China Mystery of Excess Money". Secondly, the analysis of the fictitious economy formats the "black box" of M2 and GDP. To a certain extent, opening up such a "black box" should find a new idea to interpret "The New Mystery of Excess Money".However, the dissertation also has shortcomings and aspects needing to further study. First, the causes for deviation of M2 and GDP are not only, there are many factors. So this dissertation examines only the securities market as fictitious economy factor is an unbalanced view. Second, the fictitious economy both has a positive effect on the real economy will also generate an alternative effect to it. The dissertation solely makes empirical research of its positive impact on the basis of limited samples from 1998 to 2009. Therefore, it will influence the conclusions of the empirical research.