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Financial Control and Monetary Expansion in Institution Transition Economy

Author: ZhaoJian
Tutor: HuangShaoAn
School: Shandong University
Course: Finance
Keywords: Monetary expansion Financial control Demand for money The Monetary Base Economic growth Monetary Economics Quantity Theory of Money Inflation Phillips curve Endogenous Financial Ownership structure Rational expectations Private interests Model analysis Empirical test Monetarist Internal currency Expansion path Fiscal authorities monetary
CLC: F822;F832
Type: PhD thesis
Year: 2010
Downloads: 644
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Abstract

There have been some of the monetary and financial phenomenon unique in the transition process, the most prominent one is that since the eighties of the last century, China's broad money has experienced a period of rapid expansion of From the start of 1993, of M2/GDP began more than 100%, by the end of 2007, China's broad money balance of 40.3 trillion yuan, GDP was 24.6 trillion yuan, the ratio reached 164%. This indicator is far greater than the western countries and other developing countries, the economic circles as \However, in addition to the more serious of the two-year inflation in the late 1980s, the vast majority of the period of the transition, China maintained good prices stable state, not similar to some of the South American country's currency turmoil and currency crisis occurs. At the same time, the development of China's capital market has also experienced a a system \Walking Western stock market 200 years of the journey taken \From the quantitative point of view, China's transition process, there is a process of rapid expansion of the monetary and financial (Peng Xing Yun, 2002). However, another phenomenon, there is strong government control in the process of rapid expansion of the monetary and financial, monetary and financial system, the central bank is basically no independence, more than 90% of the banking system for the state-owned commercial banks, the stock market about 70% of the listed companies controlled by the state-owned capital (see Chapter 8), most of the bond market is also the national debt. The consequences of this financial control is the emergence of a lot of fiscal and monetary and bad debt monetization, as well as state-owned commercial banks soft budget constraint. This rapid expansion of the Chinese currency in the measurement of the index and financial index, but seriously lagging behind market-oriented monetary, financial markets, monetary expansion and financial control of the coexistence of a unique phenomenon, making many of China currency issue is not with traditional monetary economics theory to explain. For example, according to the paradigm of the quantity of money, high money stock price stability means the disappearance of money, they disappear currency where? For example, in accordance with the principle of capital accumulation, capital market should be in capital accumulated to a certain extent, industrialization established very sound economic system (Bose, 2005). China in the early stage of industrialization on the establishment of a capital market, and obtained rapid development. Our problem is to ask, to follow what the expansion path of monetary expansion under the powerful financial control? Monetary expansion advance exogenous or endogenous induction? Inherent mechanism of monetary expansion? Whether there is path dependence , what are the consequences? financial development and financial liberalization in China should follow what order. . . And so on. This article is based on the expansion of China's powerful financial control of the currency of this unique phenomenon, trying to build a unified framework to analyze the causes and consequences of this problem in the economic transition system. This article is characterized by the government as the starting point of the analysis, that the understanding of China's monetary expansion path, you must understand that the main Government Chief Transition and monetary, fiscal authorities assumed the role in one of their goals and behavior, and this is a source of monetary expansion, and financial control of the means of monetary expansion. In this logic, the transition path of monetary expansion path there is an intrinsic link. Enhance the monetization of the economy and the financial level, monetary expansion early in the higher income of institutional change in the transition path stage of institutional change of diminishing returns, the extensive expansion of the quantity of money is likely to cause a number of serious economic consequences . At this time, the government is likely to indulge in the path of the money-driven economic growth depends on themselves unable. This article is from the initial transition period described at the beginning of the transition under the unique economic monetization process and financial control monetary expansion path, as well as the resulting welfare improvement or loss. Work to do in the first chapter is summarized and carding three basic research in monetary economics, mode, and extract methods and perspectives related to this study, to lay a theoretical foundation for the entire paper. This combing process is not only one of the current monetary economics research status quo simple narrative, but a different currency economy mode, as well as the different schools of thought within the different modes traced. Monetary economics from the viewpoint and method, is full of controversy and the conclusion hangs in the balance: the medium of exchange or store of value assets, neutral or non-neutral, the natural rate of interest or currency rates, adaptive expectations or rational expectations series controversy occupy the entire history of monetary doctrine. Controversy exists, has a reason to exist and the reality according to some extent because of different methods and perspectives. Additional expected from the Phillips curve Phillips curve to the rational expectations completely negate the Phillips curve, the course of the evolution of this doctrine on the one hand reaction to the reality of the ever-changing, and economics to the theory from statistics from the experience to the rational Meditation away. Same example, the decline of the classical quantity theory of money, and the monetarist its \Economics forefront. Monetary economics is never a lack of school and doctrine dispute. When the the monetarist decline, new Keynesian monetary authorities believed the so-called \consequences. Therefore, we believe that, just kind of monetary theory and methods, can not explain all of the monetary economy. Keynesian persistent, and monetarist stick who so much insistence on a way, as it is a worldview philosophy stubborn. If ignored and misunderstood Marxism monetary economics, monetary issues is not only the lack of logic depth, will lack a sense of history and humanistic care. So, by the beginning of this article, is to sort out the three basic paradigm of monetary economics \Because the end of the course of the evolution of Western developed countries for hundreds of years by the Chinese monetary economy in just a few decades, so their problems more need to \resulting in the error should not be. The second chapter, Chapters III and IV is designed to explore the expansion of high-speed currency strict financial control theory. In order to reveal this reason, we start from the initial transition period, describing the monetary and financial aspects of the economic system in the initial transition period, which is the main content of the second chapter. In the economic system, the market economy system in the Government's promotion burgeoning economic transition to take is a progressive, local institutional change mode. Institutional change to promote economic growth effect of the increase in national income. Along with the increase in private disposable income businesses and consumers, monetary and financial assets have increased demand. Low capital accumulation and output behind the economic system does not endogenously a private financial services needs of the private financial markets, the government has absolute control over the monetary and financial system, caused the currency split and occupy large macro The \This pattern of macro-financial consequences, the main micro economic decisions can not be achieved in the financial constraints the Fisher separation of social productive forces, the border can not be fully extended. In this case, the government exogenous supply of monetary assets supply played a significant role, due to the economic conditions and the limited scale of the savings, more importantly, the financial market system is the lack of growth in financial assets, currency become government financial regulator an important means, and bear important asset in the initial transition period. The third chapter from the perspective of the government to maximize seigniorage, explores the contradiction between this structure - the number of strict financial control and high-speed monetary expansion. The main government building in three models, Bailey model, Fry-Dwyer model and this investment seigniorage dynamic model. Bailey model investigated maximize seigniorage optimal target the external monetary expansion behavior taken by the Government in this model, the government, in order to increase the residents' demand for money, will the monetary and financial systems to take a series of crowding Sida money substitutes measures resulting financial repression; Fry,-Dwyer model takes into account the impact of bank ownership structure and bank operating behavior of seigniorage Bailey model of external monetary seigniorage seigniorage combination policy extended to a combination of an internal monetary and external currency on the model, the bank ownership structure, industrial structure and currency demand structure affect the government monetary expansion behavior; government investment seigniorage model built in - a utility function within the framework of the extended, consider a private goals and political the prestige target government investment - including the system of production and other public investment - and the relationship between monetary expansion, where seigniorage is no longer the Government's objective of maximizing, but merely a means of fiscal revenue . Our extended model is a dynamic model closer to the transition of the government's behavior and target characteristics. The microscopic foundation Chapters II and III, in Chapter IV, we construct a general equilibrium model, the dual role of Changing Subject of the system of government in the economy and the monetary authorities will transition into the GSM paradigm monetary economic system, to investigate the government in promoting the existence and stability of monetary expansion in the process of institutional change behavior, consequences, and balanced. Our model analysis found that the optimal mode of financing the Government to promote institutional change is to issue currency, it can not only provide the financial basis for the government to promote the transition into the private economy to meet the demand for money, but also as an important asset. Transition completed, if there is path dependence, economic growth excessive dependence on exogenous system \And economic stability as well as the impact of monetary expansion on the steady-state economy depends on the government's monetary control, which in turn raises difficult questions of financial reform. Chapters V and VI is theoretically under the financial control of monetary expansion of economic stability. Chapter VI, we further depth to the property rights aspects of the transition economies, lag analysis of financial market reform, financial property rights nationalization of the process of marketization of the economy as a whole system. Furthermore, we will have been carried out in an institutional change to a temporary balance point in time on the Analysis of the monetary systems of ownership discrimination case, the lack of productivity of state-owned assets is not a market economy Excluding go, but with forward to the expansion of the quantity of money growing monetary and financial reasons. In order to investigate this reason, we follow the relationship between ownership and sector classification, and merge the various departments of the balance sheet, so as to clarify the property rights of state-owned assets to form the context and monetary context, so as to explore the degree of market economy and the financial structure of property rights as well as The relationship between the quantity of money. The conclusion drawn in this chapter, is formed in accordance with the preferences of government property in the ownership of discrimination exists in the credit environment the path dependence monetary expansion path, is not conducive to private economic growth. The fundamental reason for the formation of ownership discrimination is reform lags behind the financial structure of property rights. Chapter VII move along the transition path and the economic growth path, discover powerful financial control of the transition economies, the government is how to arrange the financial system, the expansion of the quantity of money affect of exogenous financial growth path, and the macro- economic consequences. In accordance with the the endogenous financial evolution theory, if the economic growth of the accumulation of capital stock reaches a certain level, a large number of economies of scale in production technology began to appear, currency and other short-term risk-benefit match monotonous lower asset no longer meet the social and economic The Endogenous Financial needs, demand for financial assets will have higher requirements expand income - risk characteristics. At this time there is a potential endogenous forces to stimulate the development of financial markets. However, a government-led economic system, the government's financial development desirable path is not necessarily consistent with the financial development path and social welfare maximization. In this case, the transition economies appears different from the mainstream financial development theory described in the financial growth of the order. In this chapter, we explore the impact of monetary expansion and financial growth under the financial control of the transition economic stability. Chapters VII and VIII is based on the model of the previous chapter as a theoretical basis for an empirical test of China's entry into the market-oriented reforms since the monetary and financial issues. Chapter VII proved and elaborated the monetization process, including the monetization factor markets and capital markets monetization. Then use Chapter seigniorage theory of seigniorage estimates, and data analysis of the use of seigniorage overview by observing the bank. From a data point of view, because of the nationalization of the banking system of money, our government control with a very wide range of seigniorage - contains both external currency and contain internal currency. Use of seigniorage the currency resource allocation in the investment of state-owned enterprises and state-owned projects. Chapter VIII of the empirical test some macroeconomic consequences of monetary expansion in the Chinese financial control, found that due to the existence of financial control, the higher the stock of money to produce a potential threat to the stability of the macroeconomic, or will cause inflation foam or will result in capital goods; fluctuations in money growth also have an adverse impact on macroeconomic stability. This and all the policy authorities' macroeconomic stabilization policy challenges. The ninth chapter is a summary of the entire paper and research prospects. Sentence the basic content of the paper, is that strict financial control of high-speed research in Transition Economies \

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