A Study Of The Formation Mechanism And Monitoring Of The Asset Price Bubbles From The Perspective Of Liquidity

In recent years, there is a significant feature of the macro monetary economy in the world’s major economies:mobility fluctuates in a large range, from liquidity excess before the financial crisis to liquidity shortage in it, and then come to excess liquidity again after the crisis. At the same time, another major important phenomenon of the world economy is the global financial market asset price volatility, which influences the world economy deeply. Excess liquidity and its Reversal were widely considered to be an important reason for this phenomenon. From the perspective of fluidity, how does liquidity influence asset prices? How to monitor asset price bubbles effectively? Under the current international environment of complicated international economic and financial situation and several downturn major economies, this is not just a series of theoretical issues, but also a series of practical problems.This paper studied the formation mechanism of asset price bubbles and their monitoring based on the perspective of liquidity, aiming at solving the following questions:first, the definition and causes of asset price bubbles; second, how the asset price bubbles formed based on the perspective of liquidity; third, whether the action mechanism of liquidity on the asset price bubbles can be verified in Chinese market; forth, how to monitor the asset price bubbles from the perspective of liquidity.To the definition and causes of asset price bubbles, this paper gave the definition of asset price bubbles, and analyzed the basic characteristics of the asset price bubbles based on the summary of the lessons of history. Then we analyzed the formation of asset price bubbles from economic factors, market factors and other factors, pointing out that the liquidity factor is an important factor in the formation of asset price bubbles.About formation mechanism of asset price bubbles from the perspective of liquidity, firstly, this paper discussed the formation of asset price bubbles from a liquidity perspective based on analysis ideas of causes—ransmission channels — results. Secondly, we analyzed the formation mechanism of excess liquidity in China with the IS-LM-BP model to further demonstrate the influence of liquidity on asset prices, and discussed the impact of mobility change on general price level combined with AD-AS model under the condition of an open economy. Finally, to test the hypothesis, the paper constructed the relationship model between the excess liquidity and real estate bubbles, the derivation results showed that liquidity support was an important reason for the formation of asset price bubbles.On the empirical test of the formation of asset price bubbles from liquidity perspective, the paper selected China’s stock market and housing market data, constructed bivariate and multivariate VAR models, used empirical test such as ADF stationary test, co-integration test, Granger causality test, VAR impulse response function, variance decomposition and so on. The results showed that the increase of the level of excess liquidity would push up prices of assets, and In the formation process of asset price bubble, liquidity factors cannot be ignored.About the asset price bubbles monitoring, this paper presented an asset price bubble monitoring system, including monitoring and early warning mechanisms and buffering mechanisms. The former relied on the index system, which regarded the fundamental causes of the asset price bubble as a starting point, based on the macroeconomic factors which can impact the asset price bubbles, seized the role of liquidity in asset prices transmission channel, and applied it based on our data. The results from the application showed that the monitoring and early warning indicator system can verify the situation of China’s asset market bubble to a certain extent, and had some significance guidance on macro and micro-prudential supervision. The buffering mechanism was mainly established from three aspects of financial markets, financial institutions and regulatory bodies, aiming at controlling the risks effectively, having an effect on the market before the asset price bubble burst negative impact on the macroeconomic, reducing mobility fluctuation and producing buffering effect on asset prices plunged.