Central Bank Liquidity Management

In2007, subprime mortgage crisis originating the United States rapidly evolved into a global financial crisis in the context of globalization.On the causes of the subprime mortgage crisis, evolution and rescue measures, scholars varies, but generally agreed that the financial markets during the crisis, ample liquidity had become an instant liquidity shortage, greatly promoted the spread of the subprime crisis. Then the world’s central banks have strong liquidity management using tools such as the financial markets and recapitalize financial institutions, lowering interest rates and other measures have little effect at the start of the crisis. Central bank liquidity management is crucial for the financial crisis, stabilizing the financial system and restoring critical financial order. At present, the frequence of financial crisis breaking is higher, the mature management tools to deal with an unexpected crisis and stabilize the domestic financial market, improve the effectiveness of monetary policy has important theoretical and practical significance.In the existing literature,the research on liquidity factors and standard have made consideably progress and breakthroughs in the theory and research entities, but these studies are based on the commercial banks and make the research for liquidity issues about commercial banks system. The central bank liquidity management research is totally blank. This article is based on the perspective of central bank liquiditymanagement to do some research. Based on existing research how to measure liquidityscientificly and reasonably and construcrt liquidity management framework based on the combination of central bank liquidity management objectives and content from a warning management, daily management and crisis management of the Central Bank is the core problem to solve in this article. Therefore, this article includes the following six core parts:First, based on the central bank liquidity management’s unique perspective, the article introducts money supply theory and the Keynesian liquidity preference theory to analyze the classical tradition of central bank liquidity management. Because monetary policy liquidity supply and statutory liquidity reserve requirements are controlled by the central bank, so the central bank adjusts the liquidity supply and demand through the adoption of various policy tools to promote balance of policy objectives between the supply and demand of liquidity. The second is using the modified method for real money gap to measure liquidity.The traditional method using real money gap and the real long-term money supply to measure the difference between the liquidity. The measued liquidity gap is the absolute value and it is absolute index as time changes. Based on the method of Xudi Long, Ye Shaobo’s liquidity total excess coefficient and liquidity excess coefficient, this paper sustitutes the relative index of real money gap coefficient for absolute targets, this effectively overcomes the deficiencies of traditional methods for real money gap. Using the modified method of real money gap coefficient, the article measures china and the United States’liquidity separately, and makes comparative analysis, so we obtained a convincing conclusion.Third, based on the liquidity measure method, the article extracts early warning indicators of liquidity, and establish early warning of liquidity ordinal logit model, furthermore we proved the effectiveness of early warning indicators through empirical method.This article brings current economic and financial factors into model to analyze it’s influence on the state of liquidity, and constructs the system of early warning indicators of liquidity management. In the methodology, this paper extracts early warning factors using factor analysis to avoid multicollinearity of the selected economic and financial factors, and on this basis to create liquidity ordinal logit model for early warning. Furthemore, the article conducted Square Test of the "BRIC" and U.S. and drawn a high reliable conclusions.The fourth is the Central Bank of China daily liquidity management operations analysis and research. Using the conclusions on liquidity,we summary on the practices of three the central bank monetary policy tools in liquidity management, including the reserve, open market operations, rediscount mechanisms.And combing the early warning indicators,we raised central bank the daily concerning issues in liquidity management.The fifth is the central bank liquidity crisis management practice. Using Subprime mortgage Crisis as an example, the article analyzes the Federal Reserve and other innovative tools for short-term auction, rediscount mechanism of monetary policy tools to use.The central bank in crisis management should focus on the macro level and micro level, the prudential liquidity supervision, coordination mechanisms, and financial regulation in times of crisis,the central bank liquidity management policy innovation and regulation and other aspects of hot issues.Finally, the paper draws the conclusion on the construction of central bank liquidity management framework for policy recommendations. The Article uses warning of liquidity management, daily management and crisis management, and other three angles as the starting point to elaborate the construction of scientific and rational system of central bank liquidity management ideas and suggestions.