Theoretical And Empirical Analysis On The Relationship Between Money Supply And Price

There has always been a consensus in economics that changes in the amount of money can cause price volatility and price volatility will also counteract the amount of money.From the traditional monetary theory(MV = QP)can also be seen,if set other conditions(money velocity)must be,that money supply will indeed maintain the same relationship with the price changes.However,in recent years,China’s economic market,but there has been inconsistent with the above-mentioned theory of unconventional phenomenon.From 1991 to the present,China’s money supply M2 is on the rise.In 1991,the number of M2 was 19349.9 trillion,and by 2016,the value increased by 80 times to 1550122.31 trillion.But the strange thing is that the rapid development of money supply M2 did not bring the consumer price index CPI to the same direction.China’s CPI in the 26-year average growth rate of 4.3%.China’s this anomaly,it is worth in-depth study.Therefore,this paper uses Granger’s British test,impulse response analysis and variance decomposition to test the growth rate and CPI of long-term(1991-2016)and short-term(2007-2016)respectively.Found that in the long run,money supply M2 and CPI still maintained a significant correlation.But in the short term,the growth of money supply can not be fully reflected in the CPI growth.On the basis of this,the relationship between money supply and CPI in the short term is studied.The VAR model is used to analyze the dynamic relationship between the two in the short term from the perspective of impulse response function and variance decomposition.By analyzing the above conclusions,it is pointed out that due to the increase of quasi-monetary quantity、the rapid expansion of virtual economy and the overheating of the real estate market,the relationship between money supply and CPI is weakened in the short term,and the corresponding policy suggestions are put forward.