Study On Monetary Multiplier In China

Since 1996, The People's Bank of China has taken the money supply as the intermediate target of monetary policy. As we know, Money supply lies on monetary multiplier and base money. Generally speaking, the Central Bank can control base money, so the ability to control money supply is up to whether monetary multiplier is stable and predictable. This is the main issue to be discussed in this thesis.Firstly, this paper investigates literatures on monetary multiplier home and abroad, and then analyzes the behavior of monetary multiplier in China over the period 1994Q1-2007Q4, reveals the importance of monetary multiplier in money supply process, and tests the stability of monetary multiplier by cointegration analysis. Secondly, we try to establish a monetary multiplier component forecasting model. After analyzing determinant of money multiplier at large, we employ conintergated equation for them respectively. Furthermore, we set up ARMA model to compare the predicting accuracy of money multiplier with component forecasting model, we find that usually the component forecasting model performs better, and then we point out the factors causing the distortion of forecasting, Finally, a concluding section is provided.