The Impact Of China's Commercial Banks' Excess Reserves On The Money Multiplier

The excess reserve ratio of commercial banks is closely related to the money multiplier.The change of the excess reserve ratio directly affects the stability of the money multiplier,and the stability of the money multiplier is a prerequisite for the monetary policy control mechanism.China's commercial bank excess reserve ratio 10%from the beginning of 2000 to 1.5%of the first quarter of 2017 has undergone tremendous changes.The frequent changes in the excess reserve ratio have led to a decline in the stability of the money multiplier in China and also have further affected the supply of money in China.Therefore,it is of great theoretical and practical value to study the effect of the excess reserve ratio on the money multiplier,to carry out monetary policy formulation and improve the effect of monetary policy implementation.The full text is divided into five chapters.The first chapter is the introduction.In this chapter,the author first put forward the research background and research significance of the paper,and summarizes the literature on the excess reserve ratio and the money multiplier at home and abroad.And then elaborated the purpose of this paper,the use of research methods and innovations and deficiencies,and finally introduced the structure of this paper framework.Among them,the literature review is the focus of this chapter.Based on the purpose of this study,on the basis of study and research,the author summarizes the relevant literatures on the excess reserve ratio,the money multiplier and the relationship between them at home and abroad.The second chapter is an overview of the theory of excess reserve ratio and the money multiplier.This chapter is the basis of the study.In the part of theoretical analysis,this paper introduces some of the reserve demand model to lead to the change of excess reserve ratio.At the same time,the excess reserve ratio is introduced into the traditional money multiplier model to analyze the mechanism of excess reserve ratio affecting money multiplier.This paper argues that the effect of the excess reserve ratio on the money multiplier is divided into two aspects.First,the excess reserve ratio directly acts on the money multiplier,and the amount of excess reserve that commercial banks retains the ability to directly determine the base currency expansion;secondly,the excess reserve ratio affects the money multiplier by influencing the effect of the statutory reserve policy.Statutory reserves and excess reserves belong to the reserves of commercial banks in the central bank accounts,the central bank intends to regulate the statutory reserve ratio to adjust the money multiplier,and it will be affected by the excess reserve ratio at the same time.The third chapter is a qualitative study of the excess reserve ratio and the change of the money multiplier.This chapter is one of the important contents of this paper.In the part of the trend analysis of the excess reserve ratio,this paper sets out the preventive and involuntary excess reserve ratio by establishing the reserve dynamic model,and examines the trend of the preventive and involuntary excess reserve respectively.The trend of the reserve ratio is mainly determined by the preventive excess reserve ratio.In the part of the trend analysis of the money multiplier,this paper compares the trend of the money multiplier with the change trend of the excess reserve ratio and finds the change with considerable synchronization.The fourth chapter is the empirical analysis process,which is also a core content of this article.The empirical study in this chapter mainly analyzes the influence of excess reserve ratio on China's money multiplier by establishing the econometric model between variables.The main idea of the author is to use the time series analysis method to analyze the variables smoothly and co-integrate test to prove the existence of long-term stable trend between variables,and the establishment of vector autoregressive model,and then the empirical results were analyzed.The specific ideas of this chapter are as follows:Firstly,the author chooses the model variables according to the research purpose and the theoretical research results in Chapter 3 to collect and collate the data needed for the variables.The sample data collected during the empirical process is from the first quarter of 2006 to the fourth quarter of 2016,and the tools used are metrological statistics software Eviews 5.Second,the time series data of each variable in the model is tested for unit root,verifying the smoothness of the sequence,preventing the occurrence of "pseudo-regression".Third,use the test method for co-integration test to determine the preventive and involuntary excess preparation the long-term correlation between the prime rate and the money multiplier in our country,and the fourth part of the co-integration equation is established.Based on the self-vector regression VAR model,the short-term relationship between the variables is studied.Finally,the author analyzes and summarizes the results of empirical research.It is concluded that the excess rate is one of the important factors influencing the money multiplier in China by the theoretical analysis in the third chapter.Among them,the preventive excess reserve ratio is one of the main determinants of the fluctuation of the money multiplier in China,and the preventive excess reserve ratio has a "buffer"effect on the statutory reserve policy,and the policy of regulating the monetary multiplier of monetary policy effectiveness.Chapter 5 is the conclusion and policy recommendations.This chapter is a summary of the full text.First of all,the paper expounds the relevant conclusions on the influence of excess reserve ratio on China's money multiplier after theoretical analysis and empirical analysis.Second,the paper offers the policy recommendations made by the central bank.This paper argues that strengthening the rate cap management of the statutory reserve ratio,maintaining demand for reserves greater than supply,strengthening expected management and lowering excess reserve rates will help mitigate the "buffer" effect of the precautionary excess reserve ratio on statutory reserve policies,and control the currency multiplier policy objectives.The innovation of this paper is to subdivide the excess reserve ratio into precautionary and involuntary excess reserve ratio,and to study its impact on the money multiplier in this new perspective.However,there are still some deficiencies such as the depth and height of the qualitative analysis of the excess reserve and the possible coverage of the countermeasures.