Money Multiplier In China And Its Empirical Research

The People's Bank of China has taken the money supply as the Chinese intermediate monetary policy target from 1994. There are two main factors to control money supply: money multiplier and monetary base. The money supply equation: M=B×K. The supply of monetary base is controlled by the central bank in China. The other condition of money supply control is that money multiplier should be stable and predictable. Money multiplier and its stability determine directly the efficiency of monetary base deriving money supply. So it is especially important to analyze the influence factors of money multiplier. Analysis and forecast to the determination of money multiplier has the positive significance regarding the money authority's correct policy. The article has analyzed the problem of money multiplier, and elaborated this problem by both theory and real example. This article has analyzed the problem of money multiplier, and elaborated this problem by both theory and real example.This article is based on the analyses of money multiplier's changing rule. With the aid of the modern econometrics method, we research on each determining elements of the money multiplier, and have established the money multiplier forecast model. This article has also predicted money multiplier, and the forecast result is used for the real policy operation. The research object of this article is money multiplier in China, is suitable for our country's policy orders. It has some differences from other Western countries. For instance, our country's central bank makes the same reserve requirement ratio, but many western countries make different ratios of demand deposit and time deposit. We choose 48 groups of quarterly data from March, 1996 to December, 2007 as samples. We analyze money supply, monetary base, money multiplier, reserve requirement ratio, excess reserve ratio, currency ratio, and demand deposit ratio. We establish money multiplier long time co-integration equation and short time error correction model. In the end, we use this model to predict money multiplier in the future 4 quarters.The article is divided into four parts. In the first section of the article, the money multiplier theoretical model is proposed by taking into consideration of China's reality. In the second section of the article, the behaviors of the money multiplier and its every determining factor in China over the period of 1996-2007are analyzed. Reserve requirement ratio, excess reserve ratio, and currency ratio influence money multiplier negatively, but demand deposit ratio influences money multiplier positively. At last, we analyze the factors which influence the reserve requirement ratio, excess reserve ratio, currency ratio, and demand deposit ratio. In the third section of the article, we mainly use modern econometrics method to analyze the quarterly data from March, 1996 to December, 2007. The software we used in the article is Eviews3.1. By using co-integration test, we prove that money multiplier has relationship with its determinations. Long time co-integration equation . In the forth section of the article, based on all the theoretical research and practical research on money multiplier, we propose the relative policy suggestions on how to display money multiplier's function better.