The Empirical Study On The Effects Of China’s Economic Transformation On Liquidity Demand

Since 1978, our country has experienced more than 30 years of reform and opening up, the economic structure has appeared significant change. In the last two years, Xi jinping, the general secretary also proposed several times that the Chinese economy needs to adapt to the "new normal", and this is the latest summary of the economic transformation. With the economic transformation, the transformation of financial structure and financial innovation, various non bank financial institutions are emerging, which will have a certain impact on the money demand, and it will affect the effectiveness of the relevant economic policies. So it has very important practical significance to study the impact of economic restructuring on the money demand. Taking into account the expansion of the currency in the current stage, some financial assets which with higher liquidity have been divided into the category of broad money, the substitution of currency and non monetary financial assets has been enhanced, namely "money" has been transformed into "liquidity", so this paper focuses on the impact of economic restructuring on China’s liquidity needs, and thus put forward some policy recommendations to improve the macroeconomic policy control efficiency.There are two problems in the past research, the first is to review the domestic scholars on the economic transformation of the research content, most of them view the problem from the qualitative point, and from the quantitative point of view to analyze the article less, and the empirical data covering most of the research in 2012, the research conclusions for China’s current policy formulation is weak. The second problem is that most scholars study the content of money demand and money demand function. The research on the liquidity demand is concentrated on the liquidity of commercial banks. The innovation point of this paper is to break through the restriction of money, the main research content is the relationship between the economic transformation and the macro liquidity needs, and then to establish the VAR model for empirical analysis.This paper is divided into four parts, the first part is a brief introduction to the research background, and then to the economic restructuring and liquidity needs of domestic and foreign research literature review, and introduces the main research methods, innovations and shortcomings. The second part introduces the theoretical analysis of the impact of the economic transformation of the liquidity needs of the demand. Firstly, the paper describes the concept of economic transformation, the use of relevant data to explain the status of China’s economic transformation at present, and secondly introduces the main meaning of liquidity demand, namely, the liquidity demand is the extension and expansion of money demand, and then describes the relationship between money demand and liquidity needs. The third part is the empirical study of the above theories, the paper chooses two variables:the first is the structural changes in the economic growth, the ratio of the added value of the third industry accounts for in the added value of GDP(RATEl). The second is the structural changes of monetary substitution, the ratio of foreign currency capital in financial institutions of the M1(RATE2). After comparing the scale of social financing, the paper selects the scale of social financing to measure liquidity needs. After the establishment of the VAR model, it is found that the economic transformation has an impact on the liquidity needs. The fourth part is based on the above background, the concept and the conclusion of the model, and summarizes the conclusion and puts forward suggestions for the macro economic policy in the period of economic transition.There are two conclusions through the study of this paper, the first is the liquidity demand has positive relationship with RATE1, that is when RATE1 rises, the liquidity demand will rise. It’s mainly due to a large number of short-term capital of the industry’s operations, the average number of third industrial added value of more than the first or second industries, although the second industry in China’s total output, but because of its industrial characteristics, the use of the second industry is much faster than the flow of money in the third industry, the impact of huge capital flows on liquidity should not be ignored, so when RATE1 rise will lead to LMM rise. The second conclusion is that the liquidity demand and RATE2 has reverse direction change, that is, when the RATE2 rises, the liquidity demand will fall, this is mainly because when the economy fluctuations, will inevitably lead to the flow of international capital, which will affect the liquidity needs of a country, when the proportion of foreign currency funds increased by two, we can see that it will inevitably lead to a decline in domestic liquidity demand.