On The Relationship Between Money Supply And The General Price Level Of Cambodia

In recently years,many scholars have studied the relationship between money supply and general price level.In the modern economic context,most scholars have proved the causal relationship between them.The increase in money supply will lead to an increase in the general price level that is inflation.However,due to differences in the actual conditions of the country's development process,development priorities and geographical locations,there are also differences in the relationship between money supply and general price level.Therefore,there are many issues that need to be explored in depth.As a developing country,Cambodia has an underdeveloped financial system.However,in recently years,the Cambodian government has carried out a lot of financial reform measures and the financial development has been very rapid.In addition,multiple indicators such as money supply,real interest rates and bank capital adequacy ratios demonstrate that Cambodia's financial system is stable,and that the stability of the financial system is also an important driving force for economic growth;at the same time,Cambodia's banking system has also improved.Therefore,given Cambodia's economic development characteristics,this paper uses Cambodia as its research object,based on Cambodia's national development background,using error correction model(VEC),impulse response function of VAR model,state space model,etc.,from short-term and long-term,static from a dynamic perspective,the relationship between money supply and general price level is studied,including the theoretical link between money supply and general price level,the measurement of the static relationship between money supply and general price level.Horizontal dynamic relationship analysis.At the same time,according to the theoretical analysis and empirical results,combined with the state of Cambodia's national development,it proposes policy recommendations for adjusting inflation and deflation.This paper first sort out the theoretical connection between the money supply and the general price level,and then uses the relevant model to conduct empirical analysis.The results show that:First,from a static perspective,the relationship between the money supply of Cambodia and the general price level can be seen.It can be seen that the money supply and the resident's consumption index are first-order differential stable sequences and there is a long-term cointegration relationship.When the current resident consumption index has a positive impact on current consumer price index,leading to a current consumer price index of 0.0190,the resident consumer price index begins to gradually decline,the fourth phase is negative,and in the eighth phase,it reaches the minimum value and begins to tend to stable.When the current period has a positive impact on the logistics industry,it will not react to the current money supply,and then it will gradually increase,and will reach its maximum value in the sixth period,and will gradually stabilize thereafter.When the current supply of money was positively affected,the consumer's response to the current consumer price index was-0.0163.Since then,it has started to gradually increase,the growth rate has slowed down,and eventually it has stabilized.When the current money supply was positively affected,the current monetary supply had a response of 0.0446,which gradually declined afterwards and the rate of decline gradually slowed down.It can be seen that the stimulating response of the resident consumer index to the money supply is greater than the stimulating response of the money supply to the resident consumer index,and with the increase of the lag period,the impact effect tends to be stable.This paper uses variance decomposition technology to analyze the mutual contribution ratio between household consumption index and money supply.It can be seen that during the development of the resident consumption index,the contribution of money supply to its development gradually increases.The first phase is 0%,and the second phase is 6.1306%.After that,it began to gradually increase.Finally,the stability is close to 55%,that is,the development of money supply contributes little to the overall development of the consumer's consumption index.The contribution rate of the resident consumer index to its own development shows a declining trend and eventually stabilizes at around 44%.In the process of the development of money supply,the degree of contribution of the development of the consumer's consumption index to the money supply shows a downward trend,and the number of the retroactive period increases.The first period was 11.7763%,and it remained at 6.4% after the seventh period.The development of money supply has increased its own contribution.From the first stage to the seventh stage,the degree of contribution rose from 88.2263% to 93.1619%,and has remained stable since then.Second,from a dynamic perspective,the analysis of the relationship between Cambodia's money supply and general price levels,and by observing the dynamic process of the impact of Cambodia's money supply on general price level during the period from 1993 to 2016,we can see that even though money supply and general price level,there is a long-term equilibrium relationship between levels,but the scale of effects is not fixed.In general,during the period from 1993 to 2016,it first showed a downward trend,and then rose sharply and finally showed a slow downward trend.It is worth noting that during the period 1999-2000,the money supply coefficient for the first time changed from negative to positive,and the level of effect became positive.In fact,during this period,Cambodia's channel of domestic currency supply and the general price level was relatively stable,other disturbance factors of the general price level were weaker,and the social environment was stable.The promotion effect gradually appeared.In addition,since 2002,the positive contribution of the money supply to the general price level has stabilized at more than 0.3.This shows that since 2002,Cambodia's macroeconomic transmission channels have been basically unimpeded,domestic policies,economic and social conditions have been relatively stable and no major changes have occurred.Therefore,the direction and degree of contribution of the money supply to the general price level also remain basically unchanged.Specifically,between 1993 and 1994,the magnitude of effectiveness has not changed.In 1995,the impact of the money supply on the general price level dropped sharply to-0.12.From 1996 to 1997,the coefficients ranged from-0.12 to-0.16,showing a slow decline,with an average annual decline of about 5%.1997 was a crucial year for the change in the general price level of the money supply,and this year was a turning point when the change trend turned from falling to rising.From 1997 to 2003,the coefficient showed a rapid upward trend,rising from-0.16 in 1997 to 0.36 in 2003.The average annual growth rate reached about 30%,which indicates that the increase in money supply is conducive to the promotion of rising prices.In fact,this is related to the domestic political situation in Cambodia.In 1997,a civil war broke out in Cambodia and it ended in 1998.The establishment of a joint government by the two parties' governments,the gradual establishment and rapid development of the political,economic,and social systems,and the steady development of domestic economic and macroeconomic policies and benign transmission mechanisms for economic channels indicate that the role of money supply has rapidly increased the role of price level.At the same time,if the money supply grows too fast,the price level will also show a rapid rise,which may lead to inflation.This situation is not conducive to the economic development of the country and requires careful precautions.During 2003-2008,the contribution rate of the money supply to the general price level dropped from 0.36 in 2003 to 0.32 in 2008,which dropped by an average of 2% per year.This may be due to the relative sluggishness of domestic economic development,resulting in a corresponding increase in the supply of money in line with the general price level.The slight rebound in 2008-2009 did not include a downward trend.From 2009 to 2016,the coefficient of influence of the money supply on the general price level showed a slowly declining trend.From 0.33 in 2009 to 0.31 in 2016,the decline was small,but the downward trend was relatively obvious,because since 2008,due to the outbreak of the global financial crisis,the economies of developed countries have significantly declined.Under the influence of the developing countries,economic development has been sluggish,resulting in a decline in the effect of the money supply on the general price level.Since there is no latest data in 2017,it is impossible to obtain the specific impact of the money supply on the general price level in 2017 through empirical analysis.However,based on this downward trend,we believe that this direction will not change in 2017.This is still a positive push;however,the level of effect may decline further,even falling below 0.3.Further,through the trend decomposition of H-P filtering,it is found that the resident consumer index and monetary policy are not symmetrical.Third,regarding the macroeconomic regulatory laws and policies that regulate the relationship between Cambodia's money supply and general price level,this article divides it into three parts: economic measures,legal measures,and administrative measures.Economic measures refer to the means adopted by the country to achieve economic policy objectives.They include the development of economic tools and methods.The most advanced economic instruments can be divided into taxation policies,monetary policies,and fiscal policies.In terms of tax policy: Cambodia implements a unified national taxation system and local taxation system.The "Tax Law" promulgated in 1997 and the "Amendment to the Tax Law" promulgated in 2003 provide the legal basis for the Cambodian tax system.At present,the main taxes and taxes in the country are as follows: The main taxes in the current tax system are: profits and taxes,minimum taxes,withholding taxes,payroll taxes,value-added taxes,property transfer taxes,land idle taxes,royalties,import taxes,export taxes,special taxes,etc.The main types of taxes collected by private investment companies in Cambodia are: Profit tax 9%,VAT 10% and business tax 2%.In the case of profit tax,the target of taxation is income from taxpayers of Cambodian residents or foreign residents,and non-resident taxpayers from Cambodia.The tax amount is determined according to the taxpayer's business level,business type and company type.Use an actual tax system to simplify the tax system or calculate the tax calculation.Excluding the preferential tax rates of 0% and 9%,the general tax rate is 20%,and the tax rate for natural resources and oil and gas resources is 30%.In terms of payroll taxes,payroll taxes are taxes that are levied on a monthly basis to perform work duties.Cambodian residents come from domestic and foreign wages.Non-residents deduct payroll taxes from Cambodian wages,and employers deduct payroll taxes according to progressive tax rates.Legal measures mean that for Cambodian-type developing countries,the first step in economic development is to open up to the outside world,attract foreign investment,have advanced technology and management experience,develop domestic manufacturing,further implement industrial transformation and upgrading,and manufacture from the low end.Industry shifts to high-end technology with the upgrading of industries.The proportion of the tertiary industry continues to expand.Therefore,during the development period,Cambodia introduced the following policies to promote national economic development.The Investment Law limits the investment activities of all Cambodia people and foreigners in Cambodia,and clearly stipulates investment authorities,investment procedure,investment protection,incentive policy,land ownership,use rights,labor force use and dispute resolution.The "Investment Law Amendment" supplements and modifies the "Investment Law." The Decree No.148 concerning the establishment and administration of special economic zones stipulates the legal procedures for the establishment of special economic zones,the management framework and tasks for special economic zones,incentive measures for special economic zones,special measures for export processing and production,and regional workforce management.And use vocational training,infringement and dispute resolution.The "Commercial Management and Business Registration Law" stipulates the establishment,organization,operation,dissolution,transfer,and change of commercial companies and classifies the types of companies.The "Commercial Contract Law" stipulates the formulation,performance,interpretation and implementation of various types of contracts.Cambodia does not have special foreign investment laws and treats foreign capital and domestic capital equally.Encouraging investment areas: Article 12 of the "Investment Law" stipulates that the Cambodian government encourages investment in key areas,including innovation and high-tech industries,job creation,export-oriented,tourism,agro-industrial and processing industries,infrastructure and energy and rural development,environmental protection,invest in a special development zone established according to law.Investment restrictions: “Implementation Regulations for Amendments to the Investment Law” includes: production and processing of nerves and narcotic substances,use of international regulations or WHO prohibition of use public health impacts and the production of toxic chemicals from environmental chemicals,pesticides,killing insecticides and other products,use of imported foreign waste to generate electricity,forest development businesses prohibited by forest law,and other investment activities prohibited by law.In addition,the "Regulations" also set out "investment activities that do not enjoy preferential investment" and "particular investment activities that are exempt from tax but do not enjoy profits tax exemption." In terms of administrative measures: Cambodia promulgated Decree No.148 on the Establishment and Management of Special Economic Zones in December 2005.Cambodia has implemented a special economic zone system.The Cambodian Special Economic Zone Committee under the Cambodia Development Council is the one-stop service agency responsible for the development,management and supervision of special economic zones.The Special Economic Zone Management Committee is the national administrative agency that implements a onestop service mechanism in the special economic zones.The management unit is established by the Cambodian Special Economic Zone Commission and is stationed in the Special Economic Zone.As of the end of 2008,six special economic zones including Steinhau,Manhattan,Ou Ning,Phnom Penh,and Sihanouk were officially approved by the government,and five special economic zones were also approved by the Special Economic Zone Commission.The Economic Special Division Order stipulates that the Special Economic Zone Commission shall provide preferential policies for all special economic zones;the "Investment Law Amendment" provides that qualified investment projects located in special economic zones enjoy the same statutory preferential policies as other qualified investment projects.The preferential investment policies that can be enjoyed by developers and investment companies in the region are as follows: Tax holidays for developers in economic zones can be up to 9 years,and equipment and building materials required for infrastructure construction in import economic zones are exempt from import taxes and other tax burdens;Developers can obtain state-owned land transfer rights under the Land Law,set up special economic zones in border areas or independent regions,and invest land lease fees into enterprises.For investment companies in the region,they enjoy the same tariffs and tax benefits as other qualified investment projects.Products exported to foreign markets are exempt from VAT.Products entering the domestic market are paid in accordance with the amount of VAT.Fourth,policy recommendation on adjusting inflation and deflation,in the case of inflation,when the total supply of consumer goods falls,the total demand for consumers or the total demand for consumer goods increases relatively,the total supply of consumer goods increases,and the prices of general consumer goods will rise.Based on the view of the total amount of existing currency,economists use the total amount to calculate the total demand for consumer goods.Since then,they have determined that the demand for total consumption and total consumer goods will increase with the increase in the total amount of money.Therefore,scholars who believe in the quantity theory of money also believe that the only reason for the price increase is economic growth.First of all,regarding insufficient production of agricultural and sideline products,rising labor costs,and rising food prices caused by natural disasters,we must focus on how to mobilize peasants' enthusiasm for grain production,increase investment in agricultural infrastructure,develop modern agriculture,and reduce the circulation costs of agricultural and sideline products.For the strong pressure of rising prices,we must manage inflation expectations and achieve the policy goal of stabilizing prices.Banks should start by increasing supply and curbing demand.In terms of increasing supply,it is necessary to guide the flow of credit funds to the real economy.We must strengthen credit support for construction of agricultural infrastructure such as water conservancy construction and farmland infrastructure,vigorously improve the basic conditions for agricultural production,increase the supply of agricultural products,and strengthen the material basis for combating inflation.In terms of curbing demand,it is necessary to grasp the strength of policy control,and timely mobilize and use various monetary policy tools according to changes in macroeconomic and financial variables,so that the scale of loans and money supply can maintain a reasonable level of growth.Second,with regard to inflation-related inflationary pressures,we must open up the flexibility of policy control,review the situation again,deal with inflationary pressures in a targeted manner,and earnestly maintain the vitality of economic growth.Therefore,in the future,we must vigorously develop and improve the capital market,promote the banking business innovation and transformation,flexibly use the advantages of direct financing and indirect financing,and improve the financial market system.Finally,the government should change its development philosophy and development approach.It mainly reflects efforts to eliminate or reduce the institutional factors that cause inflation,it continues to deepen the reform of investment and financing systems,strengthens the coordination of important macroeconomic policies,establishes a comprehensive evaluation system for regional economic development,and guides more regions.Pay attention to improving people's livelihood and strengthening social management,pay attention to expanding local investment,increase transparency of regional government investment and financing,and prevent regional financial risks.In the case of deflation,the currency in circulation decreased,renminbi revenue decreased,purchase power declined and prices fell,causing deflation.Long-term monetary tightening will restrain investment and production,leading to an increase in unemployment and economic recession.Short-term deflation will lead to a general decline in prices,but as long as proper policy mediation is adopted,it may not last.For example,a fiscal policy that increases monetary supply,reduces taxes,or increases fiscal spending,if used properly,will ease the pressure on deflation.Under the current market economy,maintaining a balance between total social supply and total demand requires a good relationship between the amount of money and economic growth.In order to ensure the coordinated development of the national economy under stable prices,it is necessary to coordinate the growth of the circulation of currency and the growth rate of the national economy.In the phase of economic recession,we should adopt a macro-control approach that focuses on fiscal policy and supplemented by monetary policy that is expand investment scale,support employment,economic growth and appropriately expand fiscal policy,supplemented by a neutral monetary policy.While moderately expanding the money supply to support a moderate fiscal policy,it will prevent excessive expansion and bring the national economy to the other extreme.Specifically,there are currently three issues that need to be addressed: First,increase revenue from fiscal debt and improve regulatory capacity.Second,adjust the objectives and strength of monetary policy,and third,further improve the transparency of implementation policies.The principle of implementing a moderately expanded fiscal policy to support economic growth is to increase government expenditures by increasing fiscal expenditures and stimulate investment growth and consumption growth.Fiscal spending is of course limited by budget.To some extent,fiscal expenditure may not be limited by its income,and deficits can be made up by national borrowing.However,government-issued treasury bonds are subject to two restrictions: First,the government's restriction on the debt-bearing capacity,second,the supply of treasury bonds.During the recession,it should be accompanied by a monetary policy that neither stimulates nor stimulates economic growth,that is,a neutral monetary policy.However,the lagging effect of monetary policy has prompted its economic growth influence to often be at the highest point after the worst stage of recession.Therefore,despite the fact that the current economic process has not yet had a major impact,including the mitigation of the positive impact of deflation and the negative impact of triggering inflation,the lag in policy effectiveness will occur at the most extreme when it is least needed.This role may even lead to a new round of economic fluctuations again.Whether it is monetary policy or fiscal policy,all levels of society need to understand,accept and actively coordinate.All these are related to improving the transparency of macro-control measures.The problem of deflation is not only an economic phenomenon but also a social phenomenon.The lack of effective social demand is mainly due to expectations that economic agents are not optimistic about the economic outlook.The resulting shrinkage in consumption and investment is also the source of deflation problems.Therefore,it is crucial to increase people's confidence in reversing the economic downturn and achieving economic recovery.This requires the economic management department to improve the transparency of its implementation policy.Due to the traditional inertia of the planned economy,we can publicly declare various measures to deal with inflation when implementing austerity measures.However,when we need to implement expansionary policies to deal with the recession,the attitude is not clear.The reason may be that inflation has been questioned by the implementation of expansionary policies.In particular,the expansion of fiscal policy is often linked to deficit finance,which runs counter to the traditional concept of a balanced budget.In fact,these traditional concepts are in stark contrast to the requirements for the development of a socialist market economy.They are at least unrealistic or unrealistic.Because expansionary fiscal policies can not only ease the problem of deflation but also increase effective demand,the deficit budget and national debt that they cause will also bring about economic growth and wealth proliferation.Then,in the implementation of the expansion of fiscal policy,when issuing treasury bonds to make up for the fiscal deficit,it is necessary to wisely announce the policy intentions and economic goals to be achieved,and get the understanding and support from all walks of life to improve the effectiveness of the implementation of the policy.