A Study On The Decision Of Liquidity Surplus And Shortage And Its Reversal Mechanism

With the rapid and sustained economic growth since the reform and opening up, the M2/GDP of China has shown an obvious rising trend, far more than developed countries, the highest on the list of the world. According to the traditional quantity theory, a large number of "excess money" led to a rise in price, nonetheless, China has excess currency with low price level, which violates the traditional monetary."Golden combination"-the coexistence of "excess money" and "low price", is named as "enigma of China". Many economists once held a neutral or positive attitude to changes in the value M2/GDP. Since the beginning of the21st century, in the macroeconomic performance of the major economies, macro-liquidity changes in the same direction:from the end of2001to2007, macro-liquidity presents a sufficient or even excess momentum until the end of2007the subprime crisis was full-blown. Followed by reversal of liquidity, the subprime mortgage crisis continued to escalate as the economic crisis spread to the real economy, the liquidity suffered a severe shortage. To alleviate the crisis, monetary authorities and governments implemented timely and large-scale rescue measures, such as injecting liquidity to the market and the financial institutions, and so on. Starting in the middle of2009, the shortage of liquidity converted to excess."Missing money" has emerged again, which influenced CPI and asset prices, leading worldwide stagflation. Through a variety of transmission mechanism, monetary liquidity, the key factor for the smooth running of the macro-economic, has an important impact on the real economy and virtual economy, which undermined the traditional balance between the real economy and virtual economy. Due to changes in the structure of the modern financial system, the transmission mechanism of macro-liquidity has been updated. Its influence on asset prices, commodity prices and inflation no longer follows the traditional path, and to a certain extent, the real economy has succumbed to the virtual economy and financial fluctuations in the environment. The current international economic and financial situation is complex, and several major economies have experienced from prosperity to recession. In this international environment, the research of excess liquidity and shortage liquidity, the conversion mechanism between them and their relationship to the real economy and financial market is not only an important theoretical issue, but an important practical problem, which is currently urgent question for the macro-economic policy-making. Therefore, this dissertation is mainly to carry out the study of liquidity of excess or shortage in the financial deepening and monetary competitive environment. The author hope that research on these issues can provide the scientific qualitative and quantitative basis for making related policies, and inspire the related research.The liquidity can be understood from three levels:the monetary liquidity, the banking system liquidity and the liquidity financial market. According to the definition of the liquidity, combined with the purpose of this dissertation, the liquidity excess (shortage) is defined as each of the monetary level significantly more than (less than)the quantity of money required by the effective economic system. The excess and shortage of liquidity’s main measurement methods include: the monetarist liquidity measure, Marshall K, the excess money growth, measure of liquidity based on the monetary supply and demand theory. When conducting the research on the stylized facts and demonstration, this part uses a combination of various indicators for measurement and analysis of the U.S., Euro-zone, China and global liquidity.This study would find out the source of excess and shortage of liquidity from the perspective of monetary supply and demand. In the money supply, the policy and the input flow are the major factors. Based on the stylized facts of excess liquidity and a shortage in recent years, the author constructed the money supply model in the open economy to study China’s money supply in the existing exchange rate system. The model also includes the short-term international capital flows, which is named the "hot money", impacting upon the liquidity, especially prior to2008. In the money demand, changes in the demand for money are mainly derived from the industrial structure, microscopic principal expected. This study distinguishes the structural features of the real economy and virtual economy-the dual currency economy, emphasizes on the changes in trends of the velocity of money in the two systems and influence factors in the interpretation of the structural changes in the money demand, and how the industrial structure changes effect the money demand. Finally, this study combines the supply and demand of the total amount of money in the unique model to get the equilibrium and the disequilibrium. Combined with a variety of exogenous shocks, the monetary authorities policies, micro-units’ behavior, the monetary equilibrium model explains the conversion of the liquidity, from excess to shortage, or in reverse, comprehensively. Accompanied with the conversion, this model also illustrates the changes in main economic factors. According to the empirical results, we have the gap of different caliber of liquidity:a large monetary liquidity imbalance does exist in the real economy. From1991to2010, the shortage liquidity has converted to excess. Due to the crisis or a sudden change in monetary polices, monetary liquidity crunch happened; while excess liquidity is a long process of accumulation, which would be influenced by the domestic and external economic long-term money supply and loose monetary policy environment significantly.This dissertation conducts the research on the global liquidity phenomena, the long-term trends M2/GDP of cross-country comparisons and analysis, the transmission mechanism of liquidity cross-country, and the existence of imported liquidity. Based on the above research, the author applies the Markove Regime Switching Mechanism Model to deepen the analysis of the liquidity status, considering changes in liquidity conditions and economic fundamentals, and sums up the conversion mechanism of the liquidity. Currency liquidity status change is not only can reflect the operation of the real economy and the money supply and demand, but more immediate reflection of the development trend of the virtual economy, and match it with the real economy. This part adopts the monthly economic data of China to construct the index of liquidity to conduct demonstration with Markove Regime Switching Model. Through the analysis of the conversion mechanism of Markov Regime Switching Model system for simulation, concluded as follows:to stimulate economic development, the government or the monetary authorities tend to take accommodative monetary policy, liquidity accumulates excess with economic prosperity increasingly, the price level to rise, the financial market bubbles, then the monetary policy shift, the economic crisis lay hidden dangers. By a sudden event (for example, the collapse of financial institutions, etc.) caused the crisis, liquidity in the reversed within a short time due to the impact of the policy shift, the crisis, as well as market expectations together. On the contrary, the conversion from shortage to excess occurs slowly influenced by the economic fundamentals and policy implications. According to the estimation, we get the expected duration of the excess and shortage and the conversion probability. The excess liquidity has an long expected duration. Shortage of liquidity along with the volatility of the liquidity, its probability of occurrence is located0.8point and a serious shortage of liquidity generally happened within half a year after the crisis and before the appearance of that shortage the liquidity in a large degree of excess.