An Analysis Of The Relationship Between Money Supply And Price From The Perspective Of "China 's Mystery"

As the primary means of implementing monetary policy, money supply and its relationship with the price level have long been concerned. The scale and the direction of money supply will have a certain impact on the price level, which has become the consensus of scholars all over the world. But since Mackinnon put forward the phenomenon of "Chinese riddle", that is, money supply is not a positive correlative with price changes, there is still no a unified conclusion about the issues of whether money supply affect the price level as well as the explanation of this phenomenon.Based on the above, in this paper, the correlation analysis, VAR models and regression analysis were used to analysis the relationship between money supply and price from the ultra-long-term, long-term and short-term. Results show that money supply is a positive correlative with price changes at the ultra-long-term but a negative correlation at short-term and the money supply has a slight effect on price changes at long-term, and there is a time lag effect. Indicating that with the increasing span of time, "Chinese riddle" phenomenon is not obvious. The phenomenon of "Chinese riddle" does exist in the short-term.Then, to explain the abnormal relationship between money supply and price, first, the grey relational analysis was used to discuss the size of the grey correlation degree between the variables and the money supply in stages. The results showed that the correlation between GDP and M2 is strongest, the CPI is the most weak, comply with the "China riddle" conclusion. And the influence of the real estate market to M2 is weaker than the stock market in the first two stages, but in the next stages, the results are contrary to the previous. Second, the results of cointegration test and granger causality tests showed that GDP and real estate sales impact on the money supply, but CPI and stock turnover have no effect on the money supply in the whole sample period. Fully illustrates the reason of the abnormal relationship between the money supply and price due to monetary aggregates to the stock market and the real estate market, but the real estate market has a great impact on the money supply than the stock market. Therefore, the central bank should not only focus on the CPI in the formulation of monetary policy, but also focus on broader changes in prices, including the stock market, real estate markets, especially the real estate market.