The Research On Reasons For Rapid Growth In Money Supply

From1978until now, China’s entire economical financial domain had a series of tremendous changes. However, followed by the unceasing advancement of economic system, the macro economy’s three most important variables namely economic growth rates, the money supply and in inflation rate’s relations is various, fast increase of excessive money does not cause high rise of price level. Therefore, the research of reasons which caused excessive growth in money supply has a particularly important significance for China’s macro economic.This article first carries on the economic discussion over excessive growth in money supply phenomenon in China, and then confirms that there exist excess money phenomenon in China’s economic development from the side of M2/GDP angle. The existence of the excess money in China has posed a severe challenge to the effectiveness of monetary policy, weakened the ties between the money, prices and the outputs. Next, on the theory diagnosis part, from using Friedman’s money demand theory for reference, we find out the various factors in impacting the currency demand, and then does some analysis among the money supply and gross national product, The ratio of non-human wealth in total wealth, the rate of currency return, stock returns, the rate of bonds return, price index. Using the VAR model and the impulse response function, variance decomposition and the Granger causality test, does empirical study on the relationship of them, concluded as the factors to influence excessive growth in money supply are money supply, gross national product, stock returns etc. Finally, from the long-term perspective, this article proposes the related policies and the suggestions in the final chapter to completely solve the excessive growth of money supply in China, such as improve the ability to control money supply, regulate the development of stock markets, advancing the marketization of interest rates, improve the formation mechanism of rate exchanging.