The Research On The Effects Of Money Supply On Economic Growth In China

The relationship between money supply and economic growth is not only an important issue for economists but also for the economic policy makers. The economy's sustainable and prosperous development on the basis of low inflation or no inflation has been one of the important objectives of the government. Through surveying a great number of documents, absorbing and learning effective research methods, this paper studies the effects of money supply on economic growth, and preliminarily explores the effects transmission mechanism on the relationship of money supply and economic growth.The paper analyzes the transmission mechanism that China's money supply affects on economic growth. The research indicates that the money supply affects on economic growth mainly through the interest rate, credit, asset prices and the exchange rate. The paper also conducts a Granger causality tests on the perspective of empirical data, which examines the smooth flow of transmission mechanism in China. The Empirical test results show that the credit and the exchange rate transmission mechanism play a significant role in conspicuous; the interest rate transmission mechanism is also obvious although there is a longer lag, asset prices transmission mechanism is significant as the effect of China's capital market development in recent years, the deep-rooted problems have made significant progressThis paper presents an empirical research by the related quarterly dates from 2000 to 2009. The research examines variable stability with ADF test, and then the cointegration tests results show that money supply and economic growth has a long-term cointegration relationship, followed by the use of Granger causality tests to determine the relationship between money supply and economic growth, and finally impulse response function inspects the empirical effects of money supply on economic growth. The Empirical results further validate the theoretical conclusions of the study: the effects pathway of money supply on economic growth is unimpeded, and moderate money supply is conducive to economic growth. According to the research results, this paper provides relative policy suggestions for money supply how to promote the benign development of economic growth.