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Does Reserve Accumulation Lead To Endogenous Money Supply In China?

Author

Listed:
  • XIN LI

    (Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai, P. R. China)

  • JIAO-JIAO FAN

    (Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai, P. R. China)

  • CHI-WEI SU

    (School of Economics, Qingdao University, Qingdao, P. R. China)

  • ADELINA DUMITRESCU PECULEA

    (Department of Economics and Public Policies, National University of Political Studies and Public Administration, Bucharest, Romania)

Abstract

This study investigates the causality between reserve accumulation and money supply in China over the period of 2000:01–2016:11. The bootstrap Granger full-sample and sub-sample rolling window causality tests are utilized. The full-sample test supports that reserve accumulations lead to significant endogenous money supply. However, the sub-sample test suggests that the endogenous money supply caused by reserve accumulations mostly existed before 2007 when China implemented a compulsory exchange settlement system. Structural changes also exist as a result of the impacts of excess money supply and reserve accumulations, which suggests specific backgrounds should be taken into account when investigating this issue. The rolling window causality test provides a more accurate result when considering structural changes, which proves reserve accumulations are more likely to cause endogenous money supply in a compulsory exchange settlement system. The significant difference before and after 2007 suggests that the ending of the compulsory exchange settlement system is helpful to improve the monetary policy independence.

Suggested Citation

  • Xin Li & Jiao-Jiao Fan & Chi-Wei Su & Adelina Dumitrescu Peculea, 2021. "Does Reserve Accumulation Lead To Endogenous Money Supply In China?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 66(05), pages 1321-1336, September.
    • Handle: RePEc:wsi:serxxx:v:66:y:2021:i:05:n:s0217590818500042
    DOI: 10.1142/S0217590818500042
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