An Empirical Study On The Degree And Causes Of Excess Money Supply In China

After the reform and opening up, China’s money supply has been risen fast, the averageannual growth rate of M0, M1, M2respectively18.18%,19.16%,22.08%, along with this,China’s real GDP grew by9.86%annually, according to the traditional theory of monetaryeconomics, the amount of money in transaction shall be manifested as output and price rise,from this perspective, our country should have appeared more serious inflation, however,since China’s reform and opening up, there was no long-term sustained inflation, in mostyears, our country appeared the money supply growth exceeds the price and output growth,this USA economist Mackinnon called it "Chinese puzzle", then scholars began to study the"China mystery", and the money supply growth beyond the price and output risingphenomenon known as "excessive" money. On the causes of excessive money, many scholarsof give their explanation from their own perspective, but there has not yet formed a unified,comprehensive explanation, although some of them are reasonable, but cannot be simplyidentified as a main cause of the excess money. About the meaning of the excess money, mostscholars had given distinct conclusion based on their own deflation and method.Based on previous researches, this paper defines the concept of excess money, clarifyingthe connotation and extension of the excess money. Then according to the definition, withcurrency trading equation of variable velocity the paper calculates China’s excess moneysupply. The results find that excess monetary phenomenon exists in China, and it showsstructural characteristics. Based on the survey results, this paper summarizes the predecessors’researches on the origin of excess money. The paper utilizes artificial neural network methodto analyze the main reason for the excess money. The result indicates that monetary high dueto the development of the virtual economy and foreign exchange reserves is the main reason.Accordingly, the paper focused on analysis of the main reason, verified with stock marketvalue, stock price index and the relationship between foreign exchange reserves that haven’tbeen written off and the excess money. It is found that there is co-integration relationshipbetween these two factors and the excess money, which confirms the result of artificial neuralnetwork. Finally, the paper demonstrates conclusions and policy recommendations.