The Measurement of China’s Excessive Money and Reach on Its Macroeconomic Effects
|School||Southwestern University of Finance and Economics|
|Keywords||money over issue money supply money demand DSGE model commodity prices house prices|
China’s money supply, economic growth, inflation academia has become a hot topic lively discussed by public, academic circles and social management department. There are many theoretical researches and empirical analysis about money supply and economic growth, money supply and price level, but studies on money over issue and the measure of excessive money is less concerned, which should be focus of discussion and emphasis of research. In recent years, many domestic researchers concerned about money over issue, literatures on this topic are quite many. As different sample selection, different period of inspection and different chosen model, the conclusion is not quite the same. A common understanding has not formed. After2008financial crisis, our foreign trade and exports reduced. The Chinese government took an active monetary policy to obtain a sustained and steady growth of economy, which result in a large number of issued money. Money supply, the price index and other key indicators is increasingly becoming the focus of the parties. The problem of money over issue has become the newsletter hotspot and placed in front of government and academia.In accordance with the theory of monetary economics, money supply exceeds money demand for real economy leads to money over issue, which will push up price level. Since over30years of reform and opening up, there is a significant increase in China’s money supply. In most years, the growth rate of money supply exceeded the growth rate of GDP. Even more apparent price increase appeared in some years. It reminds that we should think deeply about the following questions: What is money over issue? How can we scientific measure the excessive money? Does money over issue in China? What impacts would the excessive money lay on commodity prices as well as house prices? What countermeasures should we take? To some extent, discussion and research about money over issue in this paper answered the above questions. This paper is divided into four parts. The first part contains the introduction and the chapter2. It first proposed the problem to study, review domestic and foreign literatures. Then introduce the theoretical framework for the measurement of money over issue. Elaborate the development and evolution of money demand theory. The second part involves chapter3and chapter4. This part gives a detailed introduction about DSGE modeling method and creates a flexible prices DSGE model to provide a basic framework for the analysis of monetary issues. After that, a sticky DSGE model is set up to measure the excessive money. Finally, accumulative excessive money and annual excessive money are calculated respectively by using this model. The third part involves chapter5and chapter6. Based on the accumulative excessive money and annual excessive money calculated in earlier part, empirical analysis is carried on about impact on commodity prices and house prices laid by the excessive money. Investigation on the impact differences to price sub-index by excessive money is also given. The forth part includes chapter7.This part briefly overview the full text, draw the main conclusions of this paper, and proposed three ways to absorb the excessive money.This paper has redefined the concept of money over issue. The excessive money should be amount that the money supply exceeds the money demand for real economy. Furthermore, we divide the excessive money into accumulative excessive money and annual excessive money respectively. We draw the following main conclusions:1. A sticky price DSGE model is built to simulate the equilibrium amount of money from1984to2010. Accumulative excessive money issuance and annual excessive money issuance are calculated respectively. Our analysis shows that the excessive money issuance appeared in1993. Since then, excessive money issuance has been a regular economic phenomenon and an important characteristic of financial deepening. During our sample period, annual excessive money issuance reached its highest point between2008and2010.The increasing of excessive money issuance effectively decreases the functioning of money.2. Using annual data to analyze relationship between the excessive money and commodity prices, we found that money over issue is only one of the factors that push up commodity prices, but not the main factor. Actually, cost factor is the main reason of price increasing. Through the contrast of the excessive money over the money supply, we found that the effect on commodity prices by money supply is larger than the effect on commodity prices by the excessive money.The effect on commodity prices given by the excessive money is relatively limited.Using monthly data to inspect the impact on commodity prices taken by money over issue after financial crisis, we found that the excessive money is the Granger cause of commodity prices. Too much money over issue would lead to price rising, but there is a time lag effect. Facing money over issue, commodity prices change up until a period of time. Besides General commodity price, money over issue also affects price sub-indexes which are under the CPI, and the effects are different. Specifically, money over issue does not lay impact on clothing, transportation, communication. It takes great influence on tobacco&liquor, takes relatively large impact on food, residence, takes small impact on household facilities, healthcares&personal articles, recreation, education, culture articles and services. As for the price sub-index under food, money over issue takes great influence on eggs, fresh fruits, fresh vegetables. It takes small impact on meal, poultry and their product, grain as well as aquatic product.3. Using monthly data to inspect the impact on house prices taken by money over issue from2008to2010, we found that the excessive money is the Granger cause of house prices. The influence of money over issue to house prices is direct positive, which makes house prices grow faster. Money over issue shock makes a high contribution to the rising of house prices, it would lay a significant impact on house prices. Money over issue also affects price sub-indexes which are under the general house price index. In details, money over issue is not only the Granger cause of newly built buildings, but the Granger cause of the secondhand houses. The excessive money takes relatively large impact on residential buildings, takes small impact on non-residential buildings articles. Among residential buildings, the effect of excessive money on newly built residential buildings is larger than that on secondhand residential buildings. In the non-residential buildings, the effect of excessive money on newly built non-residential buildings is smaller than that on secondhand non-residential buildings. As for the third level of house price sub-index, money over issue takes the greatest influence on newly built commercial residential buildings, it would also affect newly built offices, newly built affordable housing, and will take a small effect on newly built commercial business buildings, newly built houses.