The Impact Of Non-performing Loans Ratio Of Chinese Commercial Banks To CPI

Maintaining price stability is the main goal of central banks’ monetary policy around theworld, price stability can improve the operational efficiency of the financial syetem andreduce the uncertainty of economic development, thereby promoting the sustained, rapid andsound development of economy. The amount and proportion of non-performing loans ofcommercial banks affect the liquidity of the financial system, in turn, affect the price, whichis related to a country’s financial security and social stability. Therefore, the research oncommercial banks’ non-performing loan ratio on the CPI has important practicalsignificance.Firstly, this article from the angle which the commercial bank’s behavior affect theexpansion of the money multiplier effect, explaining the money supply endogenous, itanalyzed the impact about non-performing loan ratio on the CPI from the qualitative aspectsin theory and constructed a new theoretical model between them which jointing Fisher‘sthought and Cagan Model. Secondly, this article tryed to quantify the part behavior ofcommercial banks with non-performing loan ratio, from the aspect of quantitative empiricalanalysis, by using Granger causality and Vector Autoregressive (VAR) model to prove thatthe correlation between non-performing loan ratio and CPI, then it is concluded that theinfluence degree of Chinese commercial banks’ non-performing loan ratio to the CPI. Finally,on the basis of above analysis, this article put forward suggestions and countermeasures toimprove the condition of non-performing loan for the commercial banks and bankingregulators.In this paper, through the argumentation and verification of the influence of non-performingloan ratio to the CPI, draw the conclusion: in the long term, commercial banksnon-performing loan ratio has the function of the tightening the money supply, China’scommercial banks non-performing loan ratio is negatively related to the CPI. At the sametime, it indirectly illustrates that the non-performing loan ratio is an important variable ofendogenous money supply. This created the conditions for the monetary supply endogenousresearch to put forward a new research direction.