China's Money Supply Study Based On Co-Integration Analysis And Error-Correction Model

Money supply is close related to economic aim of a country. Appropriate money supply will stimulate consumption and drive economic increase. However, excessive money supply will result in the price increase or international income and expenses deterioration, and short money supply will prevent economic increase and development. So steady money supply exercises a significant role on economic healthy development of a country.It is still an emergent study problem how China's monetary department (the People Bank of China) stabilizes money supply during the implementation process of monetary policy and puts in the money supply quantity moderately, at the same time satisfies the reasonable demand of economic increase. Moreover, several emergent problems emerges in the research which China's economic cycle does using the co-integration analysis approach, for instance how co-integration analysis is exercised in virtue of econometric statistical software? How error-correction model is built on the base of co-integration test? How is the forecast effect of the error-correction?After main factors that affect on China's money supply are regarded as the variables, and general money supply is regarded as the dependent variable, the paper has selected the variables sample from 1990 to 2004, and done the analysis using reduction modeling method and the co-integration analysis approach that proposed by Granger and Engle, in order that resolve the problem of China's money supply stability and the problems that economic cycle exists in at present while using the co-integration analysis method to do the study .The full text has emphasized the analysis process of China's money supply.