China's Money Supply Endogeneity Theory And Empirical Analysis

The endogeneity of money supply is considered by post-Keynesian economists as main thesis of monetary economics. It claims that the quantity of money supply is determined by economic participants for the purpose of facilitating their economic activities, while central bank cannot determine the quantity of money at all. An exploration of the endogeneity of money supply is of great significance to selecting properly monetary aggregates and understanding the mechanism of money supply in Chinese economy and formulating effective monetary policy.What makes the monetary policies fail is the endogeneity of monetary supply, that is, the central bank cannot apply much control upon monetary stock in an economic system. In this paper, On the basis of a simple comparison between the two kinds of theories in money supply, we first retrospect the theories of monetary endogeneity, and then analyzes the influences of the behavior of such micro-economic subjects as enterprise, commercial bank and inhabitant on money supply. Then an empirical analysis of money supply is made from the perspectives of the quantity of money supply, monetary base and money multiplier to demonstrate the endogeneity of money supply. And, we use VAR model to test our hypothesis, and find that the result favor our conclusion firmly. In the end , it illustrates the impact of economic globalization on money supply and forwards some suggestions on improving our monetary policy.