Effects Of Excess Liquidity In China's Monetary Policy Governance

The problem of excess liquidity is still a prominent issue in China's economic in the recent years; academe and government have paid close attention to this problem. since 2006, the People's Bank of China have raised reserve ratio fourteen times, interest rate eight times and used open market operations as well in order to resolving excess liquidity. However, as the result of excess liquidity, high consumer prices,blind investment,expansion of bank creditare and rapid economic growth constantly emerging and expanding.It indicated that China is still under the pressure of excess liquidity. The academe and government take a sceptical attitude about the validity of resolving excess liquidity by monetary policy. So objectively evaluate the validity of monetary policy instrument is urgent, study this problem systematically is significant both in theory and reality.Under this study background, this paper firstly introduced excess liquidity's concepts,standard,cause,influence and measures of excess liquidity, it is the base for deep study on the monetary policy against excess liquidity in China's economic.And then, the manifestations of monetary policy's adjustment which include reserve ratio,interest rate,open market operations and the market feedback for 2 years are analysed by forms and graphics, combined with empirical study, this paper focuses on studying the validity of the monetary policy against excess liquidity by newest statistics. From the market reaction of monetary policy's adjustment, this paper can conclude that monetary policy instrument is ineffective and can hardly influence the whole market; it's can only reclaim few liquidity.In further, this paper use empirical analyse the effect of reserve ratio,interest rate,open market operations in resolving excess liquidity. By analysing the correlation,unit root test and cointegration test of the above-mentioned three monetary policys instruments and M2/GDP which used to weigh excess liquidity, this paper study the long-term relationship of monetary policys and M2/GDP and the influence of monetary policy to controlling liquidity. From the result of these empirical studys, the conclusion is that monetary policy can hardly control excess liquidity effectively.Based the market feedback and the empirical conclusion above-mentioned, this paper manifest that monetary policy is ineffective in resolving excess liquidity. In further, this paper analyzed the reason why monetary policy is ineffective from the defects of our country's financial market,the flaws of monetary policy instruments,the lagging of monetary policy,the game behaiver of microcosmic economic body. And puts forward corresponding policy suggestion in each period which will contribute to solving excess liquidity.