Research On The Adjustment Of Money Supply And The Efficiency Of Its Transmission

This paper mainly discusses the main characters of the QE monetary policy measures and emphasis the efficiency of the measures to the domestic real economies in United States, Euro-zone and Japan.This paper first uses the monetary supply as the typical variable to the monetary policy measures with the "Time-varying parameter" model to test the timing changing state of the monetary policy measures and the time-point of the efficiency losing during the2007Sub-prime Crisis. Then the conclusion is that the efficiency of monetary policy on the unemployment rate is decreasing the most. The most important measure to resuscitate the employment is the real economy’s recovery. And the effect of the money supply on the real economy is decreasing during the Sub-prime crisis. In the "Post-Crisis" era, the efficiency of the money supply on the real economy is increasing a little but is still not as good as the efficiency before the crisis. Now, the"Quantitative-Easing" monetary policy measures maybe the ordinary state in the post-crisis era.In order to explain the reason of the decrease about the monetary policy efficiency during the Sub-Prime Crisis, this paper discusses it from the interest rate monetary supply transmission channel, the credit monetary supply transmission channel and the exchange rate monetary supply transmission channel.The reason why we choose the three as the main objects is that the three are the main channels monetary policy measures getting effects to the real economy. From the main three monetary policy transmission channels we can get a better understanding of the reasons why the monetary policy efficiency getting lose during the2007Sub-prime Crisis.Firstly, after the analysis of the monetary policy transmission efficiency of the Fed, ECB and the BOJ during the financial crisis in2007, we can say the money supply’s increase has little effect on the basic interest and the interest rate’s change has little effect on the real economy. That is why all the three countries lower their basic interest but has little effect to the real economies. That means the United States, the Europe and the Japan are all getting into the "liquidity-trap" after the2007subprime crisis.Secondly, after the discussion of the credit monetary policy transmission channel, we can find since the subprime crisis started from the United States’financial institutions, the non-banking system of the United States are all reluctant to lend. We call it "liquidity-hoarding". The "liquidity-hoarding" makes the monetary policy transmission channels losing its efficiency. That is why the central banks increased the money supply but the economy did not apparent get apparant recovery.Thirdly, after the discussion of the exchange rate monetary supply transmission channel, we can tell that the change of the exchange rate of the three economies still have apparent effect to the total volume of the trade. But the change of the exchange rate has little effect to the real IPI (Industrial production index), CP1index and the unemployment rate. That means after the financial crisis depreciating the exchange rate will have effect to the trade amount and will in the short-term get the economy recovery. That is what we call "shifting the trouble to others". And there is the tendency from the monetary authorities to depreciate the exchange rate to recover the domestic economy.The conclusion of the whole paper is that the monetary policy measures’deficiency is because the three economies are already in the "liquidity trap". In the "Liquidity Trap", the financial institutions reluctant to lend and there is the "Liquidity Hoarding". There are all the reasons why the monetary policy measures deficiently. After the Sub-Prime Crisis, there is the speculation to avoid the domestic economic risk. The international short-term money was eager to invest money on the currecy. The USD, EURO and YEN exchange rate are all getting very high. The exchange rate monetary supply transmission channel has little effect to the real economy. The exchange rate depreciation has apparent effect to the trade amount, then after the financial crisis almost all the monetary authorities have the intention to depreciate the currency, but this measure is almost nothing to the economy increasing. From the "time-varying parameter model" analysis we can see that in the post-crisis ear the monetary policy efficiency had already increased a lot, but the monetary policy efficiency after the crisis is still not getting along with the efficiency before the crisis. The United States and the Japan’s money supply adjustment efficiency are increasing a lot, while the Euro-zone money supply adjustment efficiency is still very low. To get the world economy recovery the monetary authorities throughout the world have to pursuit cooperation with each other. The "competition depreciation" measures even the "competition quantity easing" are both wrong. Monetary policy cooperation are important to get new economic prosperous.