The Empirical Research On The Excess Liquidity In China

The problem of excess liquidity has become more and more serious in the world since2000. The problem of excess liquidity has become more and more serious in the world after2000. After the global financial crisis happened in2008, the situation of world liquidity was changed. On one hand, there was a short-time shortage of liquidity in the world right after the crisis happened. On the other hand, in order to stabilize the financial market and motivate economy development, many governments made various loose monetary policies, which led a lot of liquidity into the global market. It has been two and a half year since the financial crisis happened. As the world economy recovering slowly, some phenomena of excess liquidity start to appear in China. Through researching on the liquidity problem of China, we can gain a deeper understanding of the current liquidity condition of our country and provide some advice on the macroeconomic policies in the new economic situation.Firstly, we introduced some relative concepts about liquidity and excess liquidity, and then defined a new index called excess money supply as the index to measure the excess liquidity. Secondly, we set up a model of our citizens’demand for money, and then estimated the balanced money demand of2006-2010years with this model. We can easily find that there is excess liquidity in China by comparing the balanced money demand with the actual M2. Thirdly, according to the actual situation of our economy and society, we analyzed the current condition of excess liquidity in our country, including its main phenomena and impacts on economy. On that basis, in order to make further investigation on the liquidity condition of China, we did some qualitative and quantitative research on the critical cause for the excess liquidity in China. Based on the qualitative research, we claimed that the input of international liquidity is the significant external reason while the structure imbalance of economy is the essential internal reason. In the quantitative research, we set up a VAR model to make a quantitative analysis of the dynamic relationship among excess money supply, the difference between deposit and loan and the RMB counterpart of foreign exchange reserves. Research results showed that these two economic factors both made influence to excess liquidity. The RMB counterpart of foreign exchange reserves caused by international liquidity input and external trade was the long-term influence factor, while the difference between deposit and loan caused by the imbalance in economic development method was the main one. In the last chapter of this paper, we came up with some advice on macroeconomic policies on the basis of former qualitative and quantitative analysis.