Measurement Of Macro Monetary Liquidity In China

Liquidity is a very complex concept. So far, a unified conclusion on its definition as well as its excess or deficiency hasn’t reached yet. And it has always been a hot research object for scholars. Liquidity is becoming a breakthrough point of the study on economic cycle and economic crisis conducted by domestic and foreign scholars. With the advancement of China’s financial system reform, the orderly development of financial markets, the continuous improvement of financial instruments and the endless emergence of financial innovation, the issue of liquidity, including liquidity excess and deficiency, has been a great concern for industry professionals and policymakers. It’s also a basic part for many economic researches. For example, the discussion of monetary target, economic situation and financial capital market is closely related to liquidity analysis, which needs to be considered carefully and further studied. Therefore, it is of great practical significance to formulate reasonable liquidity policies and implement scientific liquidity management by accurately measuring and understanding liquidity from the macro level.A clear understanding of the concept liquidity is the precondition for correct liquidity anomalies analysis. Based on both macro and micro perspectives, this paper focuses on the concept of liquidity. It divides liquidity, from the macro point of view, into three levels, macro liquidity, financial institutions system liquidity and liquidity in the banking system, among which one is connected with and differed from another. In the author’s opinion, since we run this research based on the whole national economy, we should take macro liquidity rather than financial institutions system liquidity or liquidity in the banking system as our object as the latter two ones are limited in different degrees. Moreover, we should narrow macro liquidity down to monetary liquidity represented by M2with two reasons. Firstly, in our underdeveloped financial market, the broad money supply M2accounts for76.9%of the total social financing of the whole society, which is of good representative. Secondly, statistical data on the broad money supply M2is accurate and timely.This paper adopts the model index measurement system with the image index as a complement. It makes a preliminary analysis of macro monetary liquidity anomalies from image indexes of money supply, liquidity in the banking system, price level and asset prices. According to the economic data from2000to2013, there may be liquidity anomalies during some period in China. Although these indicators are easily obtained, it’s just a preliminary analysis since limited factors are considered and there isn’t an authoritative criteria. It can’t reach an accurate result as whether it is liquidity excess or deficiency. Therefore, being aware of the possible macro liquidity anomalies, we should choose from existing model indexes as our measure indicators. Considering China’s economic policy environment and the timeliness and accuracy of model data acquisition, we choose the Marshall K value method and the monetary excess coefficient method to construct the secondary index measurement system for China’s macro monetary liquidity.Monetary liquidity measure I:Marshall K value method. It uses methods of value level and long-term trend to measure macro liquidity from2000to2013in China. The long-term trend method judges an unusual liquidity by comparing the deviation degree of long-term trend lines between Marshall K value and HP filter, which makes up the difficulty in selecting the critical value in level method. Monetary liquidity measure II: monetary excess coefficient method. Selecting variables GDP, opportunity cost variables GDP deflator, interbank overnight interest rates and other system variables and current market turnover rate between Shanghai and Shenzhen, and using cointegration models to estimate the money demand function for a long time, and to effectively and accurately capture the liquidity exception information from the perspective of actual money stock deviating from equilibrium monetary demand, it is a suitable and effective way to measure macro liquidity in China.According to the result of macro monetary liquidity empirical analysis, we can draw the conclusion that China, for most of the time, is in the stage of monetary liquidity surplus. As long as our money supply keeps in a certain range around the level of equilibrium monetary demand, currency liquidity surplus or shortage can be effectively controlled to some extent. However, due to stable long-term monetary demand, once money supply largely deviates from balanced currency levels, liquidity excess or deficiency appears. Further analysis points out that a steady, positive, and appropriately loose monetary policy has a great impact on money supply. And frequent conversion between expansion and contraction of monetary policy leads to serious deviation between money supply and demand, resulting in liquidity excess or deficiency. Therefore, the central bank should implement a steady monetary policy and fiscal policy so that liquidity management in the banking system could be extended to macro liquidity management in the whole society.