Empirical Research On Liquidity Shocks And Financial Stability In China

Since the1980s, so far, the process of financial liberalization and globalizationcontinue to promote the national financial sector exposure to risk under the successivelarge-scale outbreak of the financial crisis, to national financial stability and economicdevelopment pose a serious threat. Summary of financial crises, we find that mobility isbecoming volatility affecting financial stability and the global economic cyclefluctuations of the important reasons, liquidity shocks and financial stability issues havebeen the relationship between governments and the general concern of theorists.However, at the relevant theory and research, and truly rooted in the reality of ourcountry to analyze the impact of liquidity impact on financial stability studies are rare.This article is in the background of the financial crisis in the United States, based onasset price channel, the use of a series of economic, finance theory and empiricalresearch methods, in-depth analysis of the impact of liquidity fluctuations affect thefinancial stability of the particularity and complexity.First, since the liquidity and financial stability in the areas and scope of the breadthof the international community its connotation is not a broad consensus. Based on theanalysis of existing research results, primarily from a macro perspective on thedefinition and level of liquidity divided; while combing through the existing literature,financial stability and financial instability from two angles describe the meaning offinancial stability and to analyze the liquidity of the financial crisis and the furtherspread of the crucial role played by.Secondly, this paper explains the use of the basic economic theory of liquidityshocks on asset prices mechanism: excess liquidity will cause too much moneyconcentrated in a small amount of assets to inflate asset prices, and summarizes theliquidity shock can rate channels, inflation channels, channel investment and wealtheffect channel effects influence asset prices. This paper also financial crisis, theformation of asset price bubbles burst until a detailed analysis of a series of processes,and through the relevant theoretical studies suggest that asset price volatility throughirrational herd mentality, asymmetric information channels and macroeconomic systemsaffect financial stability.Finally, the above theoretical analysis shows that liquidity shocks through assetprices as a channel indeed have financial stability can not be ignored. So, combined with China’s actual situation, the paper selected first quarter of1998-the first quarter of2013quarterly data, cointegration test, Granger causality test and VECM models on thisissue an empirical study. The empirical results validation, based on asset price channel,the money supply and inflation, and economic growth do exist between the stablelong-term relationship; money supply and inflation are mutually reinforcing, while themoney supply is only one way to economic growth causal relations, economic growth isnot Granger cause of the money supply. VECM model analysis concluded thatshort-term adjustment between these variables and long-term existence of a causalrelationship between lead to similar conclusions.Moreover, by impulse response analysis concluded that the money supply in theshort term has a negative impact on economic growth, accompanied by volatility pickedup, while inflation has always been a positive impact of volatility than economic growtheased, but over time, the two eventually become close to being a stable level; obtainedthrough variance decomposition, money supply growth and inflation on thecontributions are large, but the contribution to economic growth in a short time changesubstantially greater rate of decline but also large, while the contribution of inflationcontinued to rise after a slight decline, and ultimately both are stable level. Overall, themoney supply on inflation and economic growth are affected, including the impact oneconomic growth more significant, more volatile.Policy recommendations for liquidity shocks and financial stability, the centralbank in addition to the proper use of monetary policy, must be supplemented by otherrelevant policies, the real economy and virtual economy to maintain a balance of properguidance liquidity allocation and let it charge for economic development, rather than hitthe left and right to disrupt the economy. In addition, we should always follow liquidityindicators, asset price rises and falls prevention signs. In order to better guard againstsystemic risk, should be strengthened on the basis of micro-prudential supervision,strengthen macro-prudential supervision, the establishment of a comprehensive,standardized, systematic macro-prudential supervision system to ease macroeconomicfluctuations, maintaining financial system stability.