The Study Of Factors Influencing Money Demand Of China Under The Open Economy

Since1996, China’s intermediate target and operational objectives of monetary policy transported from the direct control of size of credit and central bank loans to the indirect control of money supply and base currency and gradually expanded the effects of the open market operations, the deposit reserve, discount and nominal interest rate policy tools in the indirect control of money supply, basically forming a indirect control system stable which to stabilize the currency stock as the ultimate goal, to monitor the money supply for intermediary goal by using many kinds of monetary policy tools. As China’s foreign dependence improve, the degree of financial integration deepening, and the reform of exchange rate system, the international factors give more and more influence on currency demand. The research on the influencing factors and stability of the currency demand is important for improving the efficiency of monetary policy regulationThroughout the research on the effect factors of China’s monetary demand, most scholars are focusing on the actual income, interest rate and inflation rate and the factors of the asset prices. Scholars’research is less on the influence factors of the currency demand in the open economy condition, especially on the long-term stability of currency demand and the dynamic adjustment of the short-term. This paper first analyzed the currency demand factors of our country in open economy, gave empirical test about the traditional monetary demand model, the currency demand model in opening condition and the institutional factors of currency demand model. Study the long-term stability of the currency demand by using E-G co-integration test, estimate the currency demand model and study the influence on demand for money. Study the short-term dynamic adjustment of China’s monetary demand by building ECM. Then, study China’s currency demand influencing factors according to the stage.Research shows that, under the condition of open economy, there is a long-term stability of co-integration relationship between the demand for real money and income, interest rate both at home and abroad, actual and effective exchange rate, commodity price level and monetized rate. The income elasticity is high and interest rates elasticity is lower. Real effective exchange rate, commodity price level and the rate of currency have more influence on currency demand. According to the short-term dynamic adjustment model of the monetary demand, when the demand for real money deviates from the long-term equilibrium state, the error correction of long-term equilibrium adjust non-equilibrium to the balance state. According to the co-integration relationship between of currency demand and other factors in different stages, found that M1is more appropriate as peg target before exchange rate reform. After exchange rate reform, M2and economic relationship became more closely. According to the research conclusion, the article put forward relevant policy suggestions from the aspects of improving monetary policy effectiveness, Interest rate marketization, financial products innovation and improving the intermediate target of monetary policy.