The Empirical Analysis On The Causes Of High M 2 /GDP In China

The reason on the phenomenon about high M2/GDP in China, has always been the focus of discussions among the scholars, because of the significance of the research both in theory and practice. This paper analyzes this phenomenon from the perspective of saving and monotony of financial assets. The form of resident savings has a direct and close relationship with the financing structure. For quite a long time China has been depending strongly on the indirect financing, so the variety of financial assets available for the selection by residents is rare, and savings deposit has been the primary option in financial investment, which probably is one of the most important causes of high M2/GDP in China. Under such a theoretical analysis to research the causes of high M2/GDP, we divided the money stock into two different parts: one part for trading and the other for saving. By analyzing how the two parts interconnect with economic growth and resident savings, we built a corresponding econometric model to test the previous theoretical hypothesis with the data we collected and calculated. The empirical research shows economic growth and resident savings do explain the fluctuation of M2/GDP in the long run. However, for chinese economy fluctuated dramatically during the past several particular years and chinese financial markets developed rapidly in recent years, this econometric model cannot fit the actual situation perfectly, so this paper also analyzed how the gap emerged. Furthermore, to grasp the economic meaning of high M2/GDP in a macroscopic view we turn to the analysis on the channels of money supply, and analyzed the effects of bad loans and the funds outstanding for foreign exchanges empirically. At last based on the conclusions of the study this paper gave the policy suggestions.