An Analysis Of Restraint Effect On Overheating Economy By Raising Legal Deposit Reserve Rate

Whether reserve against deposit is an effective monetary policy has always been a key issue for domestic and overseas scholars in studying our macro-economy. Since the implement of the marginal deposit-reserve policy from April of 2004, meanwhile, due to the more rapid development of our economy, the amazing speed of investment increment, the invalid investment structure, the continuing trading surplus as well as the stead rising of assets prices contribute to the extreme instability of our macroeconomic environment and consequently, make this environment face huge risks. In order to recover the liquidity and avoid the overheated investment, reserve against deposit, as an instrument in monetary policy, has been applied frequently by central bank. For the first half of 2011 only, reserve against deposit has been raised 7 times, with 0.5% each. For a long time, there has been a debate on the rationality of reserve against deposit as a frequent-used monetary policy, but the predominant argument is that weakening the effect of reserve against deposit as a frequently used monetary policy. With western developed countries stopping using reserve against deposit or finding another monetary policy in replacement of it in succession when conducting macro-control, our country persists in using this instrument. Therefore, at the present stage, it is helpful for us to discuss the application and the effectiveness of our reserve-against-deposit policy in order to better understand the systematic issue of this policy, which, ultimately, indicates a proper direction for the reform and creation of our reserve-against-deposit policy.After understanding the findings of domestic and foreign scholars on the effectiveness of reserve-against-deposit policy, this dissertation combines the qualitative as well as quantitative analysis, pays attention to the integration of theory and practice and uses econometric method to empirically analysis the effectiveness of our monetary policy by changing deposit-reserve ratio.The dissertation includes the following key chapters: As the introduction part of this dissertation, chapter 1 introduces the basis and background of this topic, points out the overheated issue in the process of economy development, discusses the current practical significance in studying on the policy effect of reserve against deposit, and provides the literature review on reserve against deposit and its related knowledge.Chapter 2 mainly studies the current situation of a new-round overheated in economy, verifies the overheated phenomenon in today's economy basing on the available economic indicators and the corresponding evaluation system, and emphasizes on analyzing the causes as well as the potential damages to our economy.The key components of this paper are chapter 3 and chapter 4. Chapter 3 considers the reasons why our country runs counter to the global trend by insisting on and frequent using the monetary policy of reserve against deposit, which is knows as "big axe", from theoretical point of view. Chapter 4 is the core of this paper. From the mainstream economic viewpoint, the mechanism of legal reserve is that the changes in legal deposit reserve rate attribute to the changes in money supply, and then lead to the changes in the loan balance of commercial bank, and finally influence the real macroeconomic variables. In this chapter, the non-existence of single negative hyperbola relation between reserve against deposit and money supply has been found firstly by regression. This provides evidences that legal reserves have little effect on our money supply. Moreover, econometric methodology is used to verify the positive relation between money supply and key economic indicators and draws the conclusion that it is reasonable to select our money supply as the intermediate target, whereas controlling the money supply by adjusting legal deposit reserve rate is lack of efficiency, which would weaken the effect of central bank's policies dramatically.Chapter 5 shows the conclusions from empirical analysis, discusses the current factors which influence the effectiveness of reserve-against-deposit policy as well as makes some suggestions.