Evaluation On The Rules And Effects Of China Money Supply: 1998-2008

The monetary policy is the sum of the policies and measures of the Central Bank, in order to achieve its macroeconomic targets, using various tools to control, regulate and stabilize the money supply, and then influence macroscopic economy. The monetary policy includes the monetary policy objectives, policy instruments, policy transmission mechanism and policy effects. The Central Bank complies with the monetary policy rules in the entire monetary policy operation, which includes the goal of monetary policy design, the choice of monetary policy tools, operating technologies, as well as the effect evaluation.The empirical analysis on the relationship among money supply, economic growth, and inflation in china from 1998 to 2008 shows: there is co-integration relationship among money supply, inflation, and economic growth, there is linear relationship between money supply, inflation and economic growth .they are the cause of Granger causality to each other between money supply and economic, but the money supply has strong influence to economic. There is the cause of Granger causality to each other between economic growth and inflation, money supply is still the cause of Granger causality of the inflation. There is the cause of Granger causality to each other between money supply and inflation, money supply is still the cause of Granger causality of the inflation. Therefore, the growth of money supply should be controlled in a stable zone to promote the stable growth of economy. There are contradictions between the goals of economic growth and price stability, in a short time, we should be implementing tight monetary polices. So the seeking of an adequate monetary policy rules becomes the principal task for the Central Bank.According the theory used by the Central Bank that the optimal quantity of money supply is determined by the deviation of the minimized rate of economic growth and the deviation of the inflation rate, The correlation coefficient of the model is regression estimated by using the historical data of the economic growth, money supply growth and inflation rate, and the Least-square method. Predicted the optimal value of the 2000 to 2008 growth rate of money supply according this model, and money supply rule was derived. Money supply is higher 2 to 3 percentage points than economic growth and inflation rates.Evaluating our country current monetary policy effect using the rule value, the overall effect was not very satisfactory. The main performances include the deviation between the growth rate of the money supply and its target value, the increasing pressure on the prices, etc. The primary causes include the increasing of the money supply in order to stable currency value being compelled delivery foundation currency; the reduce of the monetary policy conduction efficiency as a result of the deviation between the economic subject behavior and the Central Bank monetary policy intention. China's financial markets are underdeveloped, the instability of the money multiplier and circulation velocity have affected the effect of monetary policy. Expanding the floating scope of the money supply target, improving the open markets operation, enhancing the flexibility of the exchange rate, increasing the forecast ability for the change of the money multiplier and circulation velocity and speeding up the financial reform, these all can improve the effect of monetary policy.