Money Multiplier In China Prediction

Money has been playing an important role in modern economy,and the monetary policy is one of the main policies that adjust the macroeconemy.The People's Bank of China has taken the money supply as the Chinese intermediate targets from 1998.There are two main effects about whether the money supply is controllable:the money multiplier and the monetary base. The supply of monetary base is mainly controlled by the central bank in China.The second condition of a feasible policy of money supply control is that the money multiplier should be stable and predictable.This is the main issue to be investigated in this article.In the first main section of the article the behaviour of the money multiplier and its definitive effects in China over the peoriod 1994-2004 are analysed.We found that the money multiplier and the monetary base are interacting by analyzing,and the broad money multiplier is more stable than the narrow money multiplier.The long stable relation between money supply and monetary base is also testified.It supplys a theory guarante to set up the forcasting model of money multiplier. The second main section focuses on the forming of the forcasting model of money multiplier.The component procedure of predicting the multiplier,of which employ cointegrated ECM time-series models,will be used to estimate different money multipliers based on quarterly data for the period1994-2004.Furthermore,we compare the predicting accuracy of money multiplier between component ECM model and ARIMA model,the finding is that usually the component ECM model performsbetter.Finally,a concluding section is provided.