An Empirical Analysis Of Chinese Currency Over Based On VAR Model

Based on the People’s Bank of China’s statistics, the balance of China’s broad money supply (M2) exceeded100million yuan on April12th2013. As a result, the recent hot economic topic "currency over issue" has been pushed to a new climax. Compared to the rapid growth of M2, GDP growth seems to run adrift, and in parallel with the fast development of GDP in past few years, the current rate is slowing down. Therefore, the questions may occur:Is the "currency over issue" phenomenon actually exists in China at the moment? If the answer is yes, what are the implications and the consequences afterwards? Although the " currency over issue " phenomenon belongs to the scope of macroeconomics, in fact it is closely related to our daily life. Take for example, the most commonly results of the "currency over issue" is inflation. And the most intuitive feeling for us is the increase in price, the cost of living. Hence, the study on the cause and consequences of "currency over issue", and to find the roots of the currency issued, make relevant recommendations for the authorities for protecting the vital interests of the people become very important. Consequently, this dissertation will give a comprehensive and systematic analysis of China’s "currency over issue" problem in a theoretical and model structured way.Firstly, through our M2/GDP longitudinal comparison, and the combination of inflation and real interest rates on deposits of one year and other factors, the results of a comprehensive analysis and comparison, China currently does exist " currency over issue " phenomenon. After obtaining this conclusion, Mankiw,"Macroeconomics" in the money demand function and the actual amount of money supply policy for the cause of the problem arc used in the analysis. Moreover, the Granger causality test found that the growth of demand for money are affected not only by GDP and CPI, but also affected by high prices and foreign exchange factors.Identifying the causes of the currency issued after using the growth rate of broad money (M2) growth rate instead of real money, food, alcohol and tobacco, medical care, housing, equipment, transportation, clothing, entertainment and other eight monthly price index from January2001to December2013by stationary test, the Granger causality test and cointcgration test, the VAR econometric model is established. Further, the analysis on the variable relationships, the impulse response functions and variance analysis showed that the "currency over issue" has significant impact on food, medical care and housing price index, the same food, medical care and housing prices rise also affects the situation of the problem to a certain extent.Finally, the paper also gives some recommendations. The increase of themonetary unit utilization of GDP is far more considerable than simply control themoney supply, raise banks1required reserve ratio and statutory benchmarkinterest rate. In addition to improve the use of foreign exchange reserves，theintroduction of real estate control policies can ease the pressure of currency overa certain extent. On the other hand, the pirce department should pay more closeattention to food, medical care and housing price fluctuations. Strict control ofthese three price movements also makes contributions to our vital interests andthe preventive defense on "currency over issue" phenomenon.