Research On The Problem Of Excess Liquidity Under Tightening Policies

China has made great achievements during 30 years for reforming and opening, especially in the economic field, China's GDP was 364.52 billion RMB in 1978, but China's GDP was 24.6619 trillion RMB in 2007, 65 times more than1978. However, rapid economic growth has brought a number of problems, for instance, the widening gap between the rich and poor, imbalance between urban and rural development, and more prominent one is the problem of excess liquidity in the past two years. Deflation in the 1990s had made China's economic growth almost at a standstill, and at one time CPI had a negative growth of the phenomenon. In the new century, especially from 2004, CPI and housing prices has emerged rising too fast in our country. At the same time, stock prices index extremely rapidly jump in the past two years and it shows capital market has appeared great bubbles. China seems a problem of excess liquidity. In response to the phenomenon, the central bank adopted a tight monetary policy that the interest rate and deposit reserve ratio has increased repeatedly, and that the central bank increase open-market operations and discount rate, and so on. However, macroeconomic data of last year show that liquidity surplus has spread seriously under China's tightening policy. To solve this problem, this paper carries out the research using qualitative and quantitative analysis. In quantitative analysis, typical correlation analysis and time series analysis are mainly used. According to the research, I believe that the appreciation of the RMB and dual surplus are direct reasons of the emergence of China's surplus liquidity. The impact of liquidity excess on capital market work on faster than the commodity markets, also faster than the banking system. With regard to the negative influence of excess liquidity, the author find that current liquidity surplus can not be solved by simply relying on traditional monetary policy, must be integrated with a variety of policy measures, and lag of monetary policy require People's Bank take precautionary measures in advance, especially for the excess liquidity "dredging" instead of "stopping".