On The Relationship Between Dual Surplus Of China's BOP And Excess Liquidity

Excess liquidity has become a hidden danger to the stable operation of the economic and financial system. Dual surplus of BOP has become important issues of many academics and the Government due to its great shock to the liquidity. Excess liquidity is caused by a variety of factors. I will go through mainly from the view of its external imbalances, i.e. influence of dual surplus of BOP on the impact of excess liquidity. Moreover, the dissertation amply analyses the current accounts and capital and financial accounts in order to conclude the influence of the two accounts on the liquidity.Firstly, I review the relevant theories on China's BOP and excess liquidity systemically and try to deeply analyses the BOP's influence mechanism to China's liquidity from two aspects .i.e. balance sheet of central bank and IS-LM-BP theory, Then I choose the 1985-2007 data as the sample, using Augment Dickey-Fuller test, Johansen co-integration test, Granger causality test, measurement error correction model. I conclude that there is a long-term and stable relationship among current accounts, capital and financial accounts , liquidity. Moreover,there exists bidirectional Granger Causality relationship between LI (M₂/GDP) and current account (CA) and unilateral Granger Causality relationship between LI (M2/GDP) and capital and financial account (CFA).To solve the excess liquidity, we must find the critical measures and steps. Dual surplus and excess liquidity are both linked to the current accounts and capital and financial accounts eventually. So solving the excess liquidity, we need to improve the current accounts, capital and financial accounts surplus first. And I propose some policy recommendations as following:(1)The economic development of export strategies, which is the establishment of domestic demand-led and foreign demand supplemented. (2)Eliminating the encouraging export-oriented policies.(3)Giving national treatment to foreign investment.(4)Expanding consumer demand and establishing a consumer-led economic development models.(5)Strengthening international capital flows supervision.(6)Reforming the foreign exchange management system and so on.