Chinese Money Supply Endogeneity Analysis

Whether money supply is endogenous or exogenous is one of the most fundamental problems in Monetary Economics .The mainstream economists insist that money supply is exogenous. That means, the central bank can control money supply in its own way and to adjust the price level, the rate of the interest and the production. On the contrary, the money supply endogeny demonstrates that money supply is determined by the objective factors, such as the price level, interest and production in the economy system. Also, this problem is connected with other problems, those are, whether money is neutral or not and how the interest is determined. Further more, the effect of money policy is good or not. The endogenous money supply economist argued that money is the element in the produce of merchandise economy, and it is not neutral in any case. The viewpoint of exogenous money supply believes that money is not neutral in the short time because it can affect the output. But the increase of money will only result in the increase of the price level in the long time.In practice, nearly all the country is disturbed by the inflation and deflation continuously. Our country, also, is in the same. The inflation in early 1990s was just suppressed, and the deflation came out. How the money supply is determined is the crux to administer the inflation and deflation and it influences the intermediate target and the medium of the monetary policy. In all, the peculiarity of money supply is a most significant problem either in theory or in practice.Based on the critique and inheriting the definition of money supply endogeny given by other scholars. The thesis defines the endogenous and exogenous money supply. Then how the endogenous money supply to acts under the control of the central bank. The analyzing method of Post Keynesian is partly adopted to demonstrate the correctness of endogenous money supply. Consequently, the thesis proves that because the Monetary Base and money supply are all determined by the demand, thus the central bank hardly make the money supply increase in later 1990s deflation in our country. In the case of endogenous money supply, the monetary policy is ineffective if it choose money supply quantity as the intermediate target and Monetary Base as the medium. Influenced by some factors, we should not select interest as the only intermediate target or as the medium of monetary policy. We should adopted different policy in different case. In the long run, to keep the...