The Excess Money Supply And Price Rising

Since 2003, China's economy has experienced a rapid growth and shake off the deflation problem, the real estate and stock, represented asset prices rising firstly. After exchange rate reform in 2005, accompanied by the rapid increase in China's foreign exchange reserves, China's CPI continued to rise, the annual CPI index in 2007 reached 4.8 percent, inflation pressures enormous. How to explain the reasons for price increases, is of great significance to policy formulation and implementationThis article holds that at this stage the cause of price increases was that the rapid growth of foreign exchange reserves bringing about excess of the money supply. Statistics show that in the period 1998-2007, China's M0, M1, M2 three levels of excess money supply averaged 1.74 percent, 5.85 percent and 6.31 percent. The reason, in recent years China's rapid economic growth and the appreciation of the RMB led foreign trade and capital projects the double surplus, resulting in the rapid growth of the foreign exchange reserves. China's foreign exchange system makes mandatory the central bank's base money passive excessive running, with the money multiplier effect, resulting in the excess money supply.The excess money supply influences the commodity market and capital market, firstly triggered a rapid rise in asset prices, the wealth effect, Tobin "q" effects such as the role of triggering a rise in commodity prices.Meanwhile, in order to curb inflation intensifies, the Government has adopted tight monetary policy, repeatedly raise deposit reserve ratio and interest rates, deposit reserve ratio hike has increased the difficulty business loans, rising interest rates raise the cost of the financing of enterprises, Together with the international crude oil and raw materials price increases and further promote the further higher commodity prices. The face of internal and external imbalances of the current economic situation, China's macro-control policies in recent years to gradually adapt to the open economic conditions under the new circumstances, achieved certain results, but the economic situation is still not optimistic, the next stage needs more all-round, multi-use tool Macro-control policies to reach a balanced inside and outside the objective of sustainable development.Followed by the theory, empirical, the basic policy research methodology, the article is divided into five chapters. Chapter 1, Introducted the questions, and pointed out the background of the excess money supply and prices, previous studies and practical significance, and the structure and main contents. Chapter II defined the concept of excess money supply and ways to measure, describe the current status of the excess money supply. The chapter III Analysis the reason of China's money supply, the fast-growing foreign exchange reserves, through the way of the funds outstanding for foreign exchange affect our country's basic currency of the running, with the multiplier effect, caused by China's money supply growth. Chapter 4 Analysis the impact of asset prices on commodity prices by the excess money supply. Chapter V ,the present stage of China's macroeconomic policy measures and effect on the next stage and how to achieve balance within and outside of China's economy, sustainable development of the proposal.