The Empirical Research On The Effect Of Excessive Liquidity To Assets Price In China

The asset price in China has been inflating persistently in recent years and the speed is stupendous. At the same time, the problem of excessive liquidity has emerged gradually and become increasingly serious, which has become a vital problem in the national macroscopical control. According to international experiences, excessive liquidity and asset price inflation are very closely associated with each other. The breakdown of American stock market in 1929, the long-term economic depression caused by the perdition of Japanese economic bubbles in the 80's last century, and American hypo-debt crisis at present, all of them are led by extreme inflation of asset price, which is forced by excessive liquidity, and finally led to crisis of asset bubbles. Well then is the persistent rise of asset price in China also led by excessive liquidity? Is China forming or will form asset bubble? How to deal with the quick inflation of asset price and excessive liquidity? This paper will discuss and handle all of these problems. And the paper is divided into five chapters.The first chapter is exordium, introducing three things: the background of the topic choice, the reseach significance and the study flow. Mainly introduce the practice significance of this topic in the background of excessive liquidity, lasting high assets price, American hypo-debt crisis effecting the whole world and the tightening macroeconomic policies at present.The second chapter shows pertinent theories and literature summary. I firstly definitude two important definition in the part of theories summary, which are liquidity and excessive liquidity, then introduces pertinent content about the relationship of excessive liquidity and asset price. Thereinto, western currency conducting theory includes four representative theories, which are "q"theory by Tobin, fortune effect theory, pute correlation theory, fortune adjustment theory of monetary creed. I separately sums up the overseas and domestic theories of emporical research in the part of literature summary, and appraises briefly these literatures.The third chapter comes into empirical tache. Firstly, I makes out detailed explanation about empirical data. The paper chooses the annual datas from 1991 to 2007. Then it does regression analysis and establishes regression model and the result show that stock price has no relationship with excessive liquidity, and house price has great plus correlativity with excessive liquidity. Then through Granger causality test, I finds that stock price has no causality with excessive liquidity. And since house commercial reformation in 1998, house price has great causality with excessive liquidity.The fourth chapter is the analysis based on the relationship between excessive liquidity and asset price. There is a premise to research on the effect of excessive liquidity to asset price, which is the assured existence of excessive liquidity, so I lists warrants and reasons of excessive liquidity in the first part. I used two indexes: the first one is excess reserve rate in finance institution, and the second is ELM, which stands for the rate of generalized money supply amount to GDP. These two indexes both can explain that excessive liquidity in China is a fact and has been existing for a long time. Then I analyzes reasons for excessive liquidity in China, considers long-term loose monetary stratagy all over the world is the external reason, quick increase of foreign exchange reserve is the direct reason, and the unbalance of internal economic structure in China is the ultimate reason. The second part of this chapter discusses reasons for higher and higher house price pushed by excessive liquidity, the significant problems about real estate marke in China and the reasons in the background of excessive liquidity, the revelation of American hypo-debt storm. The third part discusses that excessive liquidity is not the reason for stock price fluctuatting but other reasons, which include corporate operation state, macroeconomic factors, political factors and psychologic factors. The forth part discusses the reaons of that excessive liquidity will not lead to asset bubbles.The fifth chapter brings forward some strategic advice about how to deal with excessive liquidity and asset price inflation. Firstly, put continually constrictive money strategy in force, reform governmental financial strategy. Secondly, develop multilayer capital market system. Thirdly, emphasize the using needs of housing, restrain real estate speculation. Fourthly, optimize the internal economic structure in China, which is the basic strategy for dealing with excessive liquidity.Finally, I makes out a brief summary, and explains the innovations of this paper. At first, I summarize the three main conclusions from empirical test which are (1) China's excessive liquidity is serious today; (2) excessive liquidity pushes the price of real estate increase continuously; (3) excessive liquidity is not the reason for stock price fluctuatting. Then generalize the reasons for these conclusons and treaatment measures. After that, I expatiate the innovations of this paper: (1) "The excessive liquidity of money" is a relative index, it is more suited to use ELM (=M2/GDP) rather than M₂ which most scholars used before; (2) most literatures take total value of stock price as the variable of assets price, I think thoses are not price indexes but products of quantity and price, so this paper uses pure price index in orther to reflect the real status in quo of excessive liquidity and assets price.