International Double Surplus Research, With Excess Liquidity

Excess liquidity could become a great hidden danger to the stable operation of the economic and financial system of a country. Dual surplus of BOP brings great shock to the liquidity, so it has become an important issue of many academics. Excess liquidity is caused by a variety of factors, and I will study the impact on excess liquidity caused by Dual surplus of BOP.Firstly, I review the relevant theories on BOP and excess liquidity systemically of foreign and domestic. This paper not only made detailed analysis of the direct relationship between these two factors. Foreign exchange could increase the supply of base money under China's special foreign exchange system, and has great influence on currency multiplier, but also made detailed and deep research on the reaction that excess liquidity could intensify the surplus of BOP. It is found that in the short term, excess liquidity will cause the increase in production, which will cause export increase; and in the long term, it can cause the prices rising, and hence attracting foreign investment and hot money inflows.Then I choose the 2001-2009 quarter data as the sample, using Augment Dickey-Fuller test, Johansen co-integration test, Granger causality test, measurement error correction model. I conclude that China's base money, currency multiplier and the fluidity indexes have stable relationship with surplus of international payment, and they have certain causality.The paper puts forward some policy recommendations according to the conclusions from empirical analysis. We must start from two directions at the same time to solve the current internal and external imbalances. Therefore, the paper puts forward some short-term and long-term policy Suggestions. In the short-term, we should adopt some policy measures to encourage imports, and adopt appropriate fiscal and monetary policies to curb the excess liquidity in domestic; in the long term, it is important to expanding consumer demand and establishing a consumer-led economic development models, and strengthening international capital flows supervision. In the end, it is also important to reform the foreign exchange management system and so on.