Study On The Relationship Between Currency Amount And Price Level In China

Price stability is the ultimate goal of Chinese monetary policy ,and money supply as the intermediate target since 1996. In this paper,cointegration,VAR,Granger causality test and other econometric techniques was used,selected from January 2001 to December 2009 as sample data, a systematic study between three levels of money supply (M0,M1 and M2) and commodity prices (CPI) and asset prices as the representative. The conclusion that:economic output,the narrow money supply (M1),CPI has the long-run equilibrium relationship. narrow money supply. This paper shows that the money supply is in direct proportion to the price level with the lag of ten months; money supply and stock market cointegration relationship exists too,indicating China's stock market is money-oriented market;money supply and real estate prices there is a one-way causal relationship,the narrow money supply M1 increased by 1% will lead to national real estate average price increase of about 0.6%.Though the monetary policy of using money supply as intermediate target to control the prices is effective,the money supply is influencing the capital more and more. The People's Bank of China should think much of this point.Following the basic study method of theory description and empirical analysis,this paper is divided into five chapters. Chapter 1 puts forward the issues and points out the background and practical significance for the study. Chapter 2 concludes and summarizes the relationship between currency amount and price level,laying a solid foundation for further investigation. Chapter 3 reviews the current study method and results from home and abroad. Chapter 4,core of the paper, conducts empirical analysis for the relationship between current amount and price level,the price being analyzed in two ways, commercial price and capital price. Chapter 5 draws a conclusion and gives suggestions on policy.