An Empirical Study On The Influence Of Money Supply And RMB Real Effective Exchange Rate On China’s Financial Cycle

In recent years,there are differences and deviations between the cyclical trends of the real economy and the virtual economy in China.At the same time,China is facing severe forms of steady growth and risk prevention.The former requires moderate easing at the policy level,but the latter requires moderate tightening at the policy level.In particular,it is necessary to avoid repeating flooding policies to cause a new round of bubbles,thus making the implementation of economic policies a dilemma.Therefore,in order to make the policy choice take into account both stable growth and risk prevention,and to balance financial support for the real economy and prevention of systemic risks,relevant policy adjustments also need sufficient theoretical support.Based on the existing relevant research and in connection with the actual situation of China’s financial system,this paper selects private non-financial sector credit,the ratio of private non-financial sector credit to GDP and the national housing boom index as the original indexes for constructing China’s financial cycle index(FC),and uses principal component analysis(PCA)method to construct a comprehensive financial cycle index that can reflect the trend of China’s financial cycle,with the measurement time ranging from the second quarter of 1997 to the second quarter of 2018.On this basis,the overall fluctuation situation and characteristics of China’s financial cycle are analyzed,and ARMA(2,1)model is constructed to predict the trend of the financial cycle in the next 16 periods.Then,the phase difference and coherence spectrum of money supply(M2)and the real effective exchange rate of RMB(RREER)and FC are obtained respectively by spectral analysis method,thus analyzing the correlation between M2 and RMB REER and FC respectively.Finally,the heteroscedasticity time-varying parameter(SV-TVP-VAR)model is constructed to analyze the impact mechanism of China’s financial cycle fluctuation through the time-varying impulse response and the impulse response at different time points.So as to understand the operating state and laws of the financial system,and to provide theoretical basis and operational path for preventing and resolving China’s systemic and regional financial risks.The results show that:first,in the time range measured in this paper,the financial cycle index has experienced six expansions and six contractions,and has experienced five complete financial cycles.In recent years,the fluctuation range of China’s financial cycle index has tended to shrink.Second,the downward pressure on China’s financial cycle index may continue for some time to come.Third,the broad money supply is the influencing factor of China’s financial cycle fluctuation,and the correlation between M2 and FC is large in the range of fluctuation cycle of 3 to 4 years.Fourth,RMB REER is the influencing factor of China’s financial cycle fluctuation,and the correlation between RMB REER and FC is relatively large within the fluctuation cycle of 2 to 3 years.Fifth,M2 and RMB REER will have a time-varying impact on China’s financial cycle,with the medium-term impact being the largest,the long-term impact the second,and the short-term impact the smallest.Sixth,the impact of the two shocks on China’s financial cycle fluctuation is pro-cyclical,but the trend of financial cycle fluctuation is basically opposite under the influence of the two shocks.The impact of currency shock on financial cycle is lower than that of exchange rate shock,but it has a trend of gradual increase in recent years.Based on the above conclusions,this article finally puts forward specific recommendations from the perspective of advancing the counter-financial cycle regulation,so as to guide the financial system to better serve the real economy while effectively preventing and controlling financial risks.