Excess Liquidity: The Alternating Between Bubbles And Inflation

"Excess liquidity" in the past two years is a hot word.a number of national scholars made analysis of the root causes of excess liquidity in 2008. Reality shows that this time the outbreak of the problem of excess liquidity is not just a phenomenon unique to China's economy .It has become to a field of "global excess liquidity". The currency loses its "anchor", the world's monetary system faced to the most serious challenges after the collapse of the Bretton Woods system, but also the world stability of the financial system pose a serious threat.Historically, price stability has always been a central goal of monetary system. U.S. well-known economist John B. Talor (1999) research showed that price stability to the financial system by increasing efficiency, reducing the uncertainty of economic prospects to promote a healthy development of economy and can bring economic benefits; price stability tend to achieve long-term stable economic growth; a low and stable inflation rate of a country can improve the performance of the economic cycle. However, the countries to achieve price stability at the same time, there have been sharp fluctuations in asset markets, the phenomenon of financial stability to a country's economy brought about by a serious threat. Against this background, the people begin to pay attention to the relations of asset prices and inflation.In this paper, the research methods and research ideas to follow from the local to the total, from the individual analysis, and then, came to the conclusion that the universality of the conclusion of the study in order to establish the alternating of asset price bubbles and inflation in the general analytical framework.In this paper, the use of econometric analysis tools in the vector autoregressive model (VAR model for short), and variable model impulse response function analysis of relevant macroeconomic variables. In this paper, to answer the question: the alternating of asset price bubbles and inflation phenomenon really exist in China? The demand for liquidity led to a bubble or inflation? What role dose the liquidity play in this alternating configuration process? This paper attempts to take advantage of China's data to answer thiese trials. the existing literatures both in China and abroad related to this problem is the basis of our study.This paper is divided into four parts.The first part began from the concept of liquidity to the understanding of liquidity. The performance of excess liquidity in China's money market, capital market and the consumer goods market, and the multiple reasons of China's excess liquidity.In the second part, from the perspective of the expectation, we use two macroeconomic model to show the generation of the asset bubble and inflation. And explain how the expectation to affect the demand for liquidity in order to affect the liquidity of the different markets.The third part is the empirical part of this article. First of all, we show the empirical evidence of the United States on the alternating of the asset price bubbles and inflation. And in accordance with statistical data on China's macro-economic characteristics of the existence of this empirical analysis show that our empirical data indicate that there is indeed this the turn of the bubble and the phenomenon of inflation. Second, select the Shanghai Composite Index, the Consumer Price Index and the broad money M2 these three indicators, the use of our country from 1992 to 2008 monthly macroeconomic data, vector autoregression model (VAR model) as well as the impulse response function of the variables the relationship between the empirical analysis carried out. Empirical results show that the impact of liquidity, China's asset prices and inflation is indeed a negative correlation between the existence and prosperity of asset prices are generally in a low and stable inflation environment that exists in theory between the two phenomenon is a sort of alternate. The fourth part based on the discussiong and empirical results of the three parts above, and summarized the conclusion of the study and put forward the direction of further research.