The Theoretical And Empirical Research Between China's Money Supply And Economic Growth

Research on monetary policy and economic activity are closely related, and is even more closely linked with a country's actual economic situation. In the literature of modern western monetary theory, the study on the role of monetary policy consists of two components: First, if monetary policy can affect economic performance; Second, the impact of monetary policy on the economy variables, namely, how policy conduct the variables. The study on monetary policy transmission should also start from these two aspects.If the money supply has an impact on actual output in an certain direction, then the central bank can control the money supply to influence the actual outputs, thereby possibly manipulate the economic operation; If not, the attempt to increase money supply to increase actual output will only raise the level of prices, leading to inflation, without any effect on the economic output, employment and social welfare.In this paper, the empirical research with impact model shows that, monthly or quarterly data both prove that China's money supply have different levels of impact on the total economy. First, as for the impact of currency on total GDP, this paper believes that the money supply, as an intermediate goal of the central bank's regulation , whether long-term and short-term equations obtained from the empirical study on experience and data, or the effect of the sub - level impulse response show that China's money supply has an obvious impact on GDP. Secondly, the results of empirical tests show that: under different data types, the impact of monetary supply on GDP, demonstrates different characteristics. Looking from the long-term aspect, the change in total economic size has a clear dependence on the growth of the money supply, and this is also an obvious feature of China's economic growth. Third, empirical analysis showed that different levels of the money supply had different impacts on GDP.Study found that, M0, M1, M2, the interest rate and GDP has a long-term stability entire Association, and between the M2 to GDP there is a significant positive correlation. On the basis of the VAR model, we analyse the Granger causality betwee the output and the money supply. In the short term, M0, M1 and M2 is the reason for the GDP Granger, and M0, M1 and M2 growth of the GDP growth rate is also Granger reasons. According to the error correction model, in the short-term, the the amendment to GDP, M2 is greater than M1 and M0.In addition, from the aspact of the conduction of monetary policy, it has a long-term and stable relation between money supply and investment, and M2, M0 and investment are significantly correlated. The empirical results show that China's money supply is gradually cumulative effect investment. In accordance with the above analysis, we can see that the broad money supply M2 is in the most obvious effect to investment.First, the impact of investment in M2 is sensitive, rapid; 2nd, the response from the investment function (absolute) than M0 ,from the response to the impact of large investment. At the same time, investment has obvious dependence on investment in a long term. The narrow M0 money is relatively clear as M2. Therefore, we can get the judgement, the money supply in the impact on investment, regulation should focus on M2, taking into account the M0 control.Finally, by testing the relationship between money supply and consumption, M0, M1 and consumption does not exist the long-term and stable relationship, but between M2 and consumption, it has the long-term stability of the significant positive correlation. In a variety of data types, M2 performance very active, and the impact of consumption on the M2 response sensitive and strong oscillations. It shows that broad money supply significant response to the consumer in the short term in, and in the long-term, consumption is more dependent on the changes of M2.Therefore, the impact of consumption by M2 have a strong sense, which is of practical significance.to the central bank on how to use monetary policy tools of macroeconomic regulation and control, consumer activated, stimulating the market demand.Therefore, based on the above evidence, broad money supply M2 and the narrow money supply M1 has a long-term cointegration relationship between GDP and the prices, M2 and M1, as the intermediary regulation targets of the Central Bank, have obvious economic effect in terms of quantity. The ultimate goal of China's central bank is to stabilize the currency and promote economic growth. With this basic premise, in the short term, the central bank should focus on the regulation of M1, because it has a more obvious relationship with macro-economy and in terms of short-term impact, and under the impact of M1, the prices'pulsive reaction is sensitive. At the same time, we must pay close attention to the effect of the changes in the M2 on macro-economy, as M2 includes M1, and growth in M2 has a long-term positive dependence on price. As money supply is the intermediate goal of regulation and control, its role is not to be ignored. So in the long run, the central bank should pay close attention to price changes, and focus on the M2, and at the same time pay attention to the integration of control of M1.This article suggest the central bank should focus on the current currency regulation and control for M2, anti-price-type tools in the rate;expansion of the RMB exchange rate flexibility, unilateral changes in the Renminbi appreciation expectations; strengthening credit management, prevent the financial risks, strengthening monetary policy and fiscal policy coordination.The possibility of Innovation and InadequacyThis paper tries to apply modern economic growth theory, game theory, which study of monetary policy to economic growth impact. The main innovation in this paper may be reflected in: First, using game theory methods study the impact of monetary policy on economic growth mechanism; Second, in this paper, on the basis of the predecessors study on the monetary policy of the relationship between economic growth and the related amendments to the model, and put forward conditions for the test model; Third, test the effects of the China's monetary policy measures,and draw the corresponding conclusions of empirical testing; Fourth, according to the empirical analysis in this paper, the corresponding Monetary policy recommendations for improvement.Because of my limited capacity, this issue can only do a preliminary study on the exploration, despite careful guidance of instructors, but in-depth study and research methods, after all, is difficult to reaching perfect. In this paper, the inadequacy of the mainly embodied is in the following points: First, the impact of monetary policy effects on the internal mechanisms have not deeply conducted; Second, no-depth study of monetary policy and fiscal policy and other related means of control of the coordination, which bring the impact on economic growth.