DOES RESERVE ACCUMULATION LEAD TO ENDOGENOUS MONEY SUPPLY IN CHINA?

Xin Li (), Jiao-Jiao Fan, Chi-Wei Su () and Adelina Dumitrescu Peculea ()
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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

The Singapore Economic Review (SER), 2021, vol. 66, issue 05, 1321-1336

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.

Keywords: Reserve accumulation; endogenous money supply; bootstrap rolling window (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S0217590818500042

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