| The healthy development of macro economy is very important for a country. As the vitality of the financial system or even the whole macroeconomic system, liquidity is rooted in the inner operation of the economy and can influence a country’s macroeconomic situation profoundly. A series of economic events show that liquidity condition is closely related to macroeconomic fluctuation. Liquidity imbalance, which caused by excess liquidity or liquidity shortage, can bring severe challenges to a country’s macro economy. Under the background of economic and financial globalization, the interactions of liquidity condition between countries are increasingly strengthening and the relationships between liquidity and macroeconomic fluctuation are becoming the focus of attention of those governments and researchers.This paper begins with defining the connotation of liquidity from three levels, which is monetary liquidity, financial institutions liquidity and market liquidity. It analyzes the correlation and transmission mechanism among different kinds of liquidity and illustrates the effect of cyclical change and state transition of liquidity on macroeconomic fluctuation. It does descriptive analysis of China’s macroeconomic fluctuation since 2000 based on the stylized facts and formation mechanism of liquidity state transition. Then, this paper explores the theoretical mechanism concerning the effect of liquidity on macroeconomic volatility based on the accounting reports of economic entity and summarizes five specific pathways between liquidity and macroeconomic fluctuation, which is interest rate transmission channel, bank credit channel, asset price channel, government debt channel and international transmission channel. After that, this article constructs models to analyze the periodic linkage effect, market spillover effect and international transmission effect of liquidity on China’s macro economy in detail. In the respect of the periodic linkage effect, we build China’s overall liquidity indicator using factor analysis method. The results of cross spectrum analysis show that there exists high degree of periodic synchronization between liquidity cycle and business cycle in China with liquidity cycle leading economic cycle about 6.90 months. The gain effect of liquidity cycle on economic cycle maximizes at 3.40 months of periodic component with 1% change of liquidity will lead to 2.252% change of macro economy fluctuation. In the respect of the market spillover effect, the results of VAR models show that liquidity shock has positive spillover effect on China’s real output in the short run, while the effect is limited in the long run. The spillover effect of liquidity on price can be divided into direct channel and indirect channel, that is, "liquidity â†' price" and "liquidity â†' asset price â†' price". In the respect of the international transmission effect, G6 national data is used to construct global liquidity indicators. Based on the outputs of SVAR models, we conclude that global liquidity expansion can rapidly generate positive impact on China’s liquidity condition and promote the increase of China’s real output through export and FDI in 4 years. Besides, global liquidity shock can influence China’s price level through direct transmission and imported inflation. Finally, related policy recommendations are proposed based on the above research conclusions. |
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