Dissertation > Economic > Fiscal, monetary > Currency > China's currency > Money management and circulation

An empirical analysis of the weakening China money supply relationship with CPI

Author WanPeiPei
Tutor DuJun
School Capital University of Economics
Course National Economics
Keywords Money supply consumer price index economic transition Granger causality test
CLC F822.2
Type Master's thesis
Year 2014
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Since1978, China’s reform and opening up to now, as China’s economicdevelopment, the domestic financial and economic phenomenon of a uniquephenomenon. Our money supply increases every year, according to Traditional quantitytheory of money, an increasing in the money supply will be accompanied by traditionalcurrency rise in the price level. However, looking at China’s economic environment,statistics show that China ’s CPI is relatively stable value in the long term, in addition tomore serious inflation in two years of the late1980s and the early1990s, but in the vastmajority of China’s economic transition period, China ’s CPI maintains a good steadystate, and even negative growth experienced price deflation. In this paper, Grangercausality test, respectively, of China’s broad money supply growth and CPI values in1985to2012and January2004to October2013inspection, both of these statisticsthrough long-term and short-term correlation test and found: the money supply is notalways cause the CPI waving. In the long term, there is a balance between the twolong-term stable relationship, but in the short term relationship between money supplyand CPI weakening. This article focuses on the objective economic reality from the viewof the theory of institutional change, the unique process from a planned economy to asocialist market economic system,explain this unconventional relationship. Also foundthat the weakening relations because: on the one hand and structural changes in themoney supply on the other hand also with the factors relevant interbank business. Resultsof this study help to explain the relationship between inflation and money supply.

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