Empirical Analysis On Measuring Of Monetary Liquidity

Chinese Economy has achieved rapid development in last five years, and the average rate of growth is beyond 10%. However, there are so many problems under the prosperity of economy. Especially the problem of Excess liquidity is one focus of them. Excess liquidity has negative effect on the economy, because it is lead to Inflation and Bubble of asset price. The stock market in China has expand so much in last five years, so Economists and policy-makers paid so much attention to this problem.In fact, excess liquidity is not a phenomenon unique to China, and the global economy has to face this problem. Actually, increase of liquidity has two channels. One channel is by the central bank's monetary supply, and the other is commercial bank money creation. Therefore, the bias caused by the monetary policy operation trigger the excess liquidity. There is little research about the measure of liquidity in contemporaneous literatures. Get through measuring liquidity, we can master the condition of Chinese liquidity. So this paper based on the monetary liquidity investigate the relationship among monetary liquidity, price of commodity, and the price of financial asset, and shed light to the improvement of money policy.The main research contents of this paper are as follows:The first section mainly defines the concept of the liquidity. After describing the conclusion of previous studies, we found that the concept of liquidity has tow substance. The first, referring to currency and the second is the ability that assets convert to the currency. Goal of this paper is research on the monetary liquidity, so we defined the liquidity in the economy as the total currency.The second section reviewed the measure of liquidity. We found the reserve is mainly a reflection of the liquidity situation of banks and other financial institutions, and excess money supply and monetary growth are reflected in the liquidity of the overall economic situation. We believe that the existing statistical indicators could not exactly reflect market and financial market liquidity. These four methods of measurement methods, the price gap, the real money gap, the nominal money gap and monetary excess of couldn't fit the actual conditions of China.The third section use Quantity equation to estimate the velocity of money in commodity market and financial market, respectively. Then we estimate total quantity base on the velocity of money in tow markets, and divided the monetary liquidity into two parts: one is liquidity of commodity market; another is liquidity of financial market. We use these results to investigate the effect of liquidity of tow market on the commodity price and financial asset price by the unit root test, VAR model, impulse response functions and Granger causality test.The fourth section analyses the traditional inflation-targeting monetary policy. We believe that the traditional focus on monetary policy to inflation. The current inflation statistics did not consider the prices of financial assets; only focus on the real economy in the price level, and precisely because of this mode of operation of monetary policy was caused by excess liquidity risk.The main conclusions of this paper are as follows:The first conclusion: The Product market currency liquidity in total changes relatively stable, compared to it, the financial market currency liquidity in total changes Very intense. From 2006 to 2007, the excess liquidity in China is mainly the existence of financial markets relatively excessive currency liquidity.The second conclusion: Through the impulse response functions and Granger causality test, we find that the product market currency liquidity has a long-term positive impact on the price of commodity, and the reaction of the impact exist time-delay.The third conclusion: The financial market currency liquidity also has a positive impact on the price of financial asset, but with the passage of time, this influence has gradually diminished, and finally almost disappeared, and reaction of the impact doesn't exist time-delay.The fourth conclusion: The financial market currency liquidity has a positive impact on the price of commodity after the seventh period, the price of financial asset has a positive impact on the price of commodity, which explains the rise in the financial market currency liquidity increases the potential pressure of the rise of the commodity price.The last conclusion: the central bank's loose monetary policy leads to excessive liquidity, the excessive liquidity may be put into the financial markets, and not enter the real economy to raise the price, as the existing operation of monetary policy has not considered the influencing factors of the asset prices, but simply focus on the real economy of the inflation rate, it will inject more liquidity. Therefore, there is a need to strengthen the central bank liquidity management, the appropriate monetary policy should also be pegged to inflation and the level of asset prices at same time.