A Research On Price Effect And Output Effect Of Money Supply In China

Being the medium of Chinese monetary policy,money supply has been one of the important methods of regulating economy.As the influence of economic crisis coming to an end,Chinese economy,which is placed in overlaying stage of changing growth rate,painful structural adjustment and digestion of stimulus measures,has began the supply-side structural reform.The paper focuses on researching whether price effect and output effect of money supply change according to different economic conditions during the above economic period.On the basis of associating literal review and summarizing of the monetary and cointegration,the first part of the paper selects several typical statistics during the following 119 months periods which includes: the 4000 billion monetary policy adopted by Chinese government when facing economic slump led by US sub-prime crisis in 2008,Chinese economy enters New Normal during 2013 and entire lunching of the supply-side structural reform in 2016.The relationship among quantity of money supply,price and output has been empirically tested and there exists a long-term stable cointegration and VEC model is established.Standardized technical means including Granger Causality Test,Impulse Response Function and Variance Decomposition have been comprehensively applied in analyzing the inner-relationship between price effect and output effect of money supply.The quantity of money supply has short-term driving force on price and output.The driving effect is especially evident on output of money supply.However,long-term money supply will lead to excess capacity of supply-side.Thus short-term instead of long-term neutral character of money supply in China has been tested.So does the strengthening endogeneity of money supply in China.The second part of the paper analyzes the slowing down growth rate of the money supply during the supply-side structural reform,gradual recovery of the price level and rebounding of output effect.The supporting method of money supply to the supply-side structural reform is also described in the first part.In the final part,the paper suggested that monetary policy should be improved while combining the macroeconomic target of making progress while ensuring stability.Interaction system between monetary policy and the supply-side structural reform should be established in order that monetary authority can promote economic development on the basis of stable price.