Based On The Sterilization Coefficient Model, The Empirical Analysis Of The Impact Of The Trade Surplus On The Money Supply

In1994, after the reform of RMB exchange rate system, China’s trade balancehas been in surplus. Especially after July2005the second reform, the trade surplushas become the largest factor leading to increased foreign exchange reserves. Therising trade surplus leads to increasing pressure of RMB appreciation, resulting inincreased domestic money supply passive. To curb excess liquidity, the domesticmonetary authorities take sterilisation operation, then, In order to analyze therelationship between the trade surplus and the independence of domestic monetarypolicy based on Sterilization operations.this paper researches from both theoreticaland empirical.In theory, under the conditions of Capital not completely flow, according to theMundell-Fleming model, this paper analyses the validity of sterilisation in differentexchange rate system, Based on this,we analyses the Mundell-Fleming model of thespecific shape in china and the theoretical mechanism of sterilization operations inChina. Theoretical analysis shows that: In our current exchange rate system, a hugetrade surplus led to a serious imbalance in international payments, the RMB exchangerate appreciation pressure increases; To stabilize the exchange rate, monetaryauthorities purchase foreign currency and put the currency, domestic money supplypassive increase; The central bank to take operation effectively relieve the excessliquidity in China.This paper estimates the sterilization and offset coefficient by modifying theBGT mode, and further analyses the differences between the trade surplus and the netflowing of FDI in sterilisation operation. Study found that: the estimated offsetcoefficient for China is about-0.5817and the estimated sterilization coefficient isabout-0.7201, and empirical findings: the estimated coefficient for trade surplus is-0.7919and the coefficient for FDI is3.783. The monetary authorities takesterilisation operation more efficient in trade surplus. And the sterilisation operationin FDI is not only failed to reduce the domestic money supply, it will aggravate thesituation of excess domestic liquidity.