How China's Monetary Velocity Fluctuation Influences Monetary Policy

The monetary velocity is a comparatively complicated problem in monetary theory. Monetary velocity is one of the most effective indexes inflecting the quality of a country's economy operation and money flow. Among the researches of the monetary velocity, the study on the reasons of the monetary velocity fluctuation has achieved a lot, but the achievements of how China's monetary velocity fluctuation influences macroeconomics are much fewer. So, it is necessary to analyze monetary velocity fluctuation theories further. In view of the importance of the monetary velocity instituting monetary policy, studying on monetary velocity has the important theoretical and realistic meaning. This paper analyzes the interaction between monetary velocity fluctuation and monetary policy.Firstly, the paper analyzes the trend of Chinese monetary velocity based on the statistics of the last 20 years, and finds that monetary velocity fluctuates very seriously. Secondly, this paper probes into the reasons why Chinese monetary velocity fluctuates by Granger cause and Causality test. We find there are three factors that influence monetary velocity, such as the big gap between the rich and the poor, the inefficient banking system and the high personal saving propensity. This paper also analyzes how Chinese monetary velocity has an impact on monetary policy in Chapter Three.At the last chapter, this paper puts forward the policy recommendations to improve the current situation of Chinese monetary velocity, which include accelerating the reformation of the banking system, reducing the excessive reserve rate, activating the idle fund, narrowing the gap between the rich and the poor, improving social economy expectation through perfecting social security system, and expanding the consumptive credit to enliven market trade.