The Research On The Quantity Theory Of Money And China's Money Supply

Quantity Theory of Money is a theory that links commodity prices to quantity of money. It is not only the theoretical pillar of Contemporary currency school, but also an economics proposition which is quite historical and controversial. From the basic viewpoint of early quantity theory of money to Fisher's exchange equation and Marshall's Cambridge equation, then to Friedman's money demand function and Marx's money demand theory, it reflected the process of economic thinking from a proposal to continuous improvement and development. Being tested by hundreds of economic practice and developed or perfected by a number of eminent economists, the Quantity Theory of Money has formed a theoretical system represented by the Modern Monetarist School. After researching on the Western Quantity theory of money, analyzing its background, main ideas and policies, we derived theoretical guidance and reference for China's Quantity Theory of Money. We proposed economic model suited for China's environment and provided empirical analysis on it.Nowadays, the inflation rate and money supply have become important indices of macroeconomic regulation. How to work out an effective monetary policy and how to establish an efficient, low-cost Central Bank system have also become important economic issues. In 2009, under the influence of the current financial crisis, the Central Bank used money supply as a prerequisite to ensure economic growth. The Central Bank put forward clearly the growth target of money supply which is linked with GDP. That means the policy in favor of a fixed monetary growth rate of Modern Monetarist School has been further practiced in China. Recently, China's economists are increasingly concerned about the theoretical and empirical research on monetary theory and practice, as well as promoted the development of research increasingly by empirical analysis. However, due to the differences among econometric model, sample spacing, target selection and data processing, the conclusions are also different. Therefore, it has important theoretical and practical guidance significance to research the relationship between money supply and other economic variables for the last 10 years in China.This paper combines Economic Thinking with Monetary Finance and Econometric analysis, combines theoretical analysis with empirical analysis, and combines qualitative analysis with quantitative analysis. It proposed an innovative model and gives suggestions for future direction of China's monetary policy. This thesis is divided into five chapters. The first chapter proposes research ideas and methodology, based on reviews of the latest research results on the relationship between money supply and economic growth at home and abroad; Chapterâ…¡provides systematic exposition as well as evaluation and comparative analysis to the formation and development of quantity theory of money, according to different schools of economic thoughts; Chapterâ…¢discussed the currency-neutrality and non-neutrality, monetary endogenous and exogenous through the role of money supply to economic growth, and analyzes the hierarchy of the money supply, as well as its transmission mechanism; Chapterâ…£, as the focus of this thesis, puts forward an innovative model of China's money supply, empirically studied money supply and relevant economic variables using Eviews software, and arrived the conclusion that there are obvious long term relationships among M2, GDP, CPI and R, and that money supply growth has significant impacts on economic development and fluctuations. Lastly, based on the previous three chapters of the study, it provides an adjustment proposal to the government's macro-level monetary policy, which has strong practical significance.