The Variation Of The Effect Mechanism Of Money On The Price In The Process Of Economic Transition

As an important economic indicator, the price is a " barometer" of a country’seconomic, and reflects the degree of hotness or coldness of a market economy.Prices rise or fall sharply will have serious impact on the national economy.Therefore, fluctuations in the price level have always been highly concerned bygovernments and economists, most of the countries also put stabilizing prices as oneof the ultimate goals of monetary policy. Also because of this, the impact of currencyon prices has long been a core issue of economists. As a representative of monetarist,Milton Friedman in attempt to find the balance of optimum quantity of money and theprice level, and he said:" the optimal behavior of price level has been discussed for acentury at least, although did not reach real and convincing answer."1According tothe traditional relationship between currency and prices, changes in the money supplywill cause the changes in price level in the same direction, In the long run, monetarychanges will eventually be reflected in the price level. However, the facts are notalways like classical and modern quantity theory of money says that a positivecorrelation exists between money and prices, the impact of the currency on the priceshowed some differences in different stages of economic, and there exist the deviationphenomenon between reality and the traditional theory. To this, many existingresearch analysis from various angles, for example, the infarction of the monetarytransmission mechanism, lag effect, subjective expectations, credit constraints and thedevelopment of the capital market, but little analysis the impact of currency changeson the price from the specific conditions of China’s dual economic restructuring.Combined with the specific conditions of China’s economic transition, this paperwill focus on comparative analysis the difference of currency impact on prices in thedifferent stages of the dual transformation. Compared with the previous studies, thispaper attempts to put Dual Contrast Coefficient as a measure of the strength of thedual economic structure, and establish the model which reflect relationship betweenmoney and prices under the condition of dual economy, it is aim to reexamin therelationship between money and prices under the condition of dual economy. First ofall, combined with the feature of dual economy, reconstructing the transformationmechanism of currency impact on the price under dual economy on the basis oftraditional monetary price relation theory; Then, the overall trend analysis andcomparative analysis of different time periods about the basic facts of Chinese1The Optimum Quantity of Money: And Other Essays, Friedman, Lin Zhongxiong translation,1-2pages. currency and price relationships; And then, the correlation between money and pricesof short-term during dual transformation process were analyzed; Finally, for long-termco integration relationship between money and prices and impulse response will beanalyzed. Through theoretical analysis and empirical research, this paper draws thefollowing conclusion:(1) In the process of dual economic structure gradually weakened, the match-ingrelationship between the money supply and labor force is changing, since fewer andfewer available surplus labor transfer, And the money supply in the society more andmore, which means, more money will dominate the less labor, therefore, theincreasing of the money supply will be more likely to cause the nominal wage(nominal monetary income) increases, resulting in higher price level rose.(2) The cross-term which consists of Dual contrast coefficient and the moneysupply in total SVAR model exist a coefficient estimator whose absolute value of theT-statistic are greater than2, it Showed that the strength of the dual economicstructure has significant influence on the relationship between money and prices.From the impulse response analysis, given a unit of the positive impact of moneysupply, the consumer price index CPI is not always produce positive response. Inother words, from the perspective of long-term dual economic transition process, themoney supply affect the price may be different, appear even negative effects, duringdifferent stage of binary transformation.(3) Phased impulse response analyses is showed that, for the positive impact of agiven unit of the money supply growth rate, the CPI growth rate response to differentintensity under different intensity of dual economic structure. Specific performance:the weaker the dual economic structure, the stronger of the impact of changes in themoney supply effect on prices, This means that to some extent, the weaker the dualeconomic structure, the more obvious of the regulation, which the money supplyeffect on the price.The policy implications of this study is to provide a new perspective forenhancing the effectiveness of monetary policy, To this, the article finally putsforward some Suggestions according to the results of the study. The Main recomm-edition is that monetary policy should take the dual economic structure strengthfactors into consideration, Implementation of different monetary policy underdifferent dual economic structure strength.