Analysis Of Cause: China's Money Velocity Decrease

Money velocity, a very important variable discussed for hundreds of yeas by many economists in western countries, is still a puzzle in monetary theories. As historical statisticsindicates, in different countries and macroeconomic backgrounds, money velocity perform differently. Before 1978's China, money velocity kept in a relative constant 8 in a Jong term. But after this time, money velocity decreases for more than 20 years. Especially GDP/M₂, its decrease trend is unprecedented whether by its absolute value or its decrease speed.This paper emphasizes more on china's transition economy, hold that mere factors en institution changes tc influence money velocity should be paid attention, while all the traditional variables are considered. So, not only monetization and security market emergence are the important variables discussed in this paper, but M₂'s specific role played in China's economy as financial asset is also crucial factor to determine money velocity. In addition, this paper also points out China's potential financial risk and distortion of income distribution mechanism, which are connected closely with China's money velocity.This paper contains 6 Chapter. After the first chapter's brief introduction, to prepare for the later analysis, the second part narrates in detail the classical western economic theories about money velocity chronologically. The following 3 chapters mainly discuss several important factors tc inflnsncs rr.oney velocity's Change, while some simple mathematical and econometrics model are used to support the main point of view. in the end, conclusions and proposals are given.