Open AccessAnalysis of the Effects of Frequent Increases of the Reserve Requirement Ratio by the People’s Bank of China
Author(s) -
Haiying Pan,
Huan Song,
Yu Wang,
Yangyang Hu
Publication year - 2012
Publication title -
modern economy
Language(s) - English
Resource type - Journals
eISSN - 2152-7245
pISSN - 2152-7261
DOI - 10.4236/me.2012.32032
Subject(s) - reserve requirement , market liquidity , china , foreign exchange reserves , economics , monetary economics , inflation (cosmology) , monetary policy , vector autoregression , loan , index (typography) , excess reserves , bank reserves , statutory liquidity ratio , chinese financial system , money supply , central bank , macroeconomics , physics , theoretical physics , political science , law , world wide web , computer science
The legal required reserves system is a monetary policy that is used by central banks to perform macroeconomic adjustments. In China, the required reserves system is one of the most important policies of the People’s Bank of China. In this study, using information from the Vector Auto-Regression Model and utilizing monthly data of the reserve requirement ratio (RRR), money supply, Consumer Price Index (CPI), and loan scale from January 2006 to March 2011, we quantitatively studied the effects of frequent increases in the RRR in China. We found that China’s monetary policy regarding required reserves has not had a significant effect on dealing with excess liquidity, preventing inflation or controlling increases in the loan scale. We briefly analyzed the reasons for the limited actual effects of China’s required reserves policy regarding the required reserves system, monetary transmission mechanism, system of forced Ren Min Bi sale, and purchase of foreign exchange