Chinese Monetary Policy Response To The Study Of The Effectiveness Of Excess Liquidity

During the past few years, serious excess liquidity emerged in economy of all the countries worldwide, including China. In order to solve the excess liquidity, the finance central bank raised deposit reserve ratio several times, issued bank money, raised the interest rate and lowered the tax of interest, however, these measures didn't make effects. China had surplus in the international balance of payment, and kept stable exchange rate policy, the finance central bank's charging against reserve made more money supply. With the 2008 finance crisis, the world economy was in depression, governments lowered their interest rate, increased money supply to the economy, added the excess liquidity. Now the excess liquidity has been the most urgent problem to solve.The thesis investigates how the excess liquidity responds to the monetary policy(including interest rate policy and exchange rate policy) by employing the regression model, and traces out that to some extent the monetary policy can tune up liquidity, but over a long period of time, the effect of the interest rate policy and the exchange rate policy to the excess liquidity is weak. The empirical results indicate that after the reformation of the exchange rate institution in 2005, the exchange rate began to have a great effect on liquidity, and in a short time, the effect of the exchange rate to the liquidity is greater than that of the interest rate.The thesis is composed of five chapters. The 1st chapter is about the background and significance, and viewpoint as to the excess liquidity and monetary policy. In chapter 2, we introduce some monetary policy to solve the excess liquidity. The 3rd and 4th chapter is about the interest rate and the exchange rate policy and the reason why they didn't act effectively. In chapter 5, we employ a regression model to analyze whether the interest rate and the exchange rate has effect on the excess liquidity. And we find out that the government should be cautious to increase money supply. And put more importance on the exchange rate when solving the excess liquidity.