Research on the Relationship between China´s Excess Liquidity and Asset Prices

Accompanied by increasing foreign exchanges and double-surplus balance-of-payments, China´s excess liquidity and its effects on asset prices have recently attracted considerable attention. The indicators of growth rate of money (credit) to growth rate of GDP ratio could dispel seasonal influence. According to VAR model, Granger causality tests and cointegration tests reveal that there are no relationships between excess liquidity and equity prices, but there are weak relationships between excess liquidity and house prices. Therefore, it won´t be useful to cut down the excess liquidity so as to squeeze equity price bubble; China should attach importance to real estate bubble and avoid its negative effects to the whole economy.