Exam 7: Monetary Policy and Institutions in China and the United States

Go to FRED (the Federal Reserve Economic Database) and provide monthly seasonally adjusted and non-seasonally adjusted money supplies for China. Calculate (infer) the seasonal adjustment factor for China. In the far right column, a figure above 1 suggests a "low seasonal month" in China and below 1 suggests a "high seasonal month." DATE Seasonally Adjusted Not Seasonally Adjusted Ratio of SA to NSA 10449850000000.000 1999-01-01 10466917610816.5 10550030000000.000 0.992122071 1999-02-01 10773870593377.0 10777840000000.000 0.999631707 1999-03-01 10900612054468.2 10843820000000.000 1.005237274 1999-04-01 10915295568646.8 10921830000000.000 0.999401709 1999-05-01 11065882705659.8 11006090000000.000 1.005432693 1999-06-01 11144176043978.9 11136350000000.000 1.000702748 1999-07-01 11101204411429.7 11141410000000.000 0.996391337 1999-08-01 11303259078393.2 11282700000000.000 1.001822177 1999-09-01 11610407810821.6 11507930000000.000 1.008904973 1999-10-01 11500985323408.3 11538960000000.000 0.996709004 1999-11-01 11666640574758.1 11655930000000.000 1.000918895 1999-12-01 11925988158627.5 11989790000000.000 0.994678652 2000-01-01 12031793523227.1 12122040000000.000 0.992555174 2000-02-01 12166968768808.2 12158300000000.000 1.000712992 2000-03-01 12280185583948.7 12258070000000.000 1.001804165 2000-04-01 12429138245887.5 12412190000000.000 1.001365452 2000-05-01 12474944730463.3 12405330000000.000 1.005611679 2000-06-01 12603977370014.6 12660530000000.000 0.995533155 2000-07-01 12606953784500.4 12632390000000.000 0.997986429 2000-08-01 12789907492078.7 12779030000000.000 1.000851199 2000-09-01 13095490039885.2 13047380000000.000 1.003687333 2000-10-01 13007121882988.4 12952240000000.000 1.00423725 2000-11-01 13168801171623.1 13099400000000.000 1.005298042 2000-12-01 13375522096441.5 13461030000000.000 0.993647744 2001-01-01 13645655724727.8 13754360000000.000 0.992096741 2001-02-01 13644265260406.1 13621020000000.000 1.001706573 2001-03-01 13852398695019.5 13874450000000.000 0.998410654 2001-04-01 14032430474603.9 13995000000000.000 1.002674561 2001-05-01 13970505473607.6 13901590000000.000 1.004957381 2001-06-01 14676383721860.0 14780970000000.000 0.992924262 2001-07-01 14898425757452.8 14922870000000.000 0.998361961 2001-08-01 14996135687863.0 14994180000000.000 1.00013043 2001-09-01 15164750886556.8 15182020000000.000 0.998862529 2001-10-01 15280002199705.3 15149730000000.000 1.008598978 2001-11-01 15534693513486.8 15408830000000.000 1.008168272 2001-12-01 15739265300512.8 15830190000000.000 0.994256247 2002-01-01 15856509902772.2 15966860000000.000 0.993088804 2002-02-01 16122848764290.9 16093560000000.000 1.001819906 2002-03-01 16339963450120.5 16406460000000.000 0.995946929 2002-04-01 16486734314310.6 16457060000000.000 1.001803136 2002-05-01 16667182437748.2 16606100000000.000 1.003678313 2002-06-01 16833745624116.7 16960120000000.000 0.992548733 2002-07-01 17071906221810.0 17085110000000.000 0.999227176 2002-08-01 17328143557819.8 17325090000000.000 1.000176251 2002-09-01 17664467013639.3 17698240000000.000 0.998091732 2002-10-01 17895870120976.1 17729420000000.000 1.009388357 2002-11-01 18146377909667.6 17973630000000.000 1.009611186 2002-12-01 18439844697732.6 18500730000000.000 0.996709032 2003-01-01 18934213823294.1 19018830000000.000 0.995550926 2003-02-01 19036043720696.3 19010840000000.000 1.001325755 2003-03-01 19338469237270.0 19448730000000.000 0.994330696 2003-04-01 19623391971807.9 19613010000000.000 1.000529341 2003-05-01 19999739234001.8 19950520000000.000 1.002467065 2003-06-01 20338338552288.2 20493140000000.000 0.992446182 2003-07-01 20633858851368.2 20619310000000.000 1.000705594 2003-08-01 21072340546078.5 21059190000000.000 1.000624456 2003-09-01 21305438757844.6 21356710000000.000 0.997599291 2003-10-01 21649497677449.8 21446940000000.000 1.009444596 2003-11-01 21850969772401.1 21635170000000.000 1.009974489 2003-12-01 22085977091914.0 22122280000000.000 0.998358989 2004-01-01 22389670235606.5 22510190000000.000 0.994645991 2004-02-01 22722527808125.8 22705070000000.000 1.000768895 2004-03-01 23016801382365.1 23165460000000.000 0.993582747 2004-04-01 23322916519558.7 23362790000000.000 0.998293291 2004-05-01 23514740725461.5 23484240000000.000 1.001298774 2004-06-01 23668843714203.0 23842750000000.000 0.992706115 2004-07-01 23858808056421.2 23812700000000.000 1.00193628 2004-08-01 24012748501299.9 23972920000000.000 1.001661395 2004-09-01 24325187514968.7 24375690000000.000 0.997928162 2004-10-01 24616540959686.0 24374030000000.000 1.009949564 2004-11-01 24958718313541.6 24713560000000.000 1.009919992 2004-12-01 25299127692038.1 25320770000000.000 0.999145274 2005-01-01 25635699396375.3 25770850000000.000 0.994755679 2005-02-01 25935334556113.0 25935730000000.000 0.999984753 2005-03-01 26282671057836.0 26458890000000.000 0.993339897 2005-04-01 26618532102164.9 26699270000000.000 0.996976026 2005-05-01 26949362552884.2 26924050000000.000 1.000940147 2005-06-01 27376205489409.3 27578550000000.000 0.992662975 2005-07-01 27726333710933.8 27696630000000.000 1.001072467 2005-08-01 28184296971504.7 28128820000000.000 1.001972247 2005-09-01 28714303008870.2 28743830000000.000 0.998972754 2005-10-01 29080537124717.6 28759160000000.000 1.011174774 2005-11-01 29534330317167.8 29235040000000.000 1.010237384 2005-12-01 29877662982443.2 29875550000000.000 1.000070726 2006-01-01 30211385382742.3 30353860000000.000 0.995306211 2006-02-01 30417933429963.7 30451630000000.000 0.99889344 2006-03-01 30833000531771.5 31049070000000.000 0.993041033 2006-04-01 31248463383110.9 31370180000000.000 0.99611999 2006-05-01 31676230748007.2 31670980000000.000 1.000165791 2006-06-01 32025273755490.9 32275640000000.000 0.992242873 2006-07-01 32361113710569.2 32401080000000.000 0.998766514 2006-08-01 32841705520876.7 32788570000000.000 1.00162055 2006-09-01 33207213807827.6 33186540000000.000 1.000622958 2006-10-01 33712736474346.2 33274720000000.000 1.013163641 2006-11-01 34146077890341.4 33750420000000.000 1.011723051 2006-12-01 34625518916908.4 34557790000000.000 1.001959874 2007-01-01 35013452972569.6 351498800000000.000 0.996118706 2007-02-01 35787555732482.6 35865930000000.000 0.997814799 2007-03-01 36099726621288.6 36410470000000.000 0.991465549 2007-04-01 36564683878276.1 367326500000000.000 0.995427334 2007-05-01 36958510010891.1 36971820000000.000 0.999639996 2007-06-01 37436015197636.4 37783220000000.000 0.990810608 2007-07-01 38241229843656.6 383884900000000.000 0.99616395 2007-08-01 38779661588117.8 38720500000000.000 1.001527914 2007-09-01 39400513383944.0 39309890000000.000 1.002305358 2007-10-01 40018823168908.1 39420420000000.000 1.01518003 2007-11-01 40537544408365.7 39975790000000.000 1.014052365 2007-12-01 40503449844137.9 40340130000000.000 1.00404857 2008-01-01 41631675226688.0 41784617000000.000 0.996339759 2008-02-01 42001564413199.8 42103784000000.000 0.9975722 2008-03-01 41860470750450.8 423054530000000000 0.989481681 2008-04-01 42654746648327.7 42931372000000.000 0.993556569 2008-05-01 43538645512301.5 43622160000000.000 0.998085503 2008-06-01 43834391360289.1 44314102000000.000 0.989174763 2008-07-01 44458416982574.2 44636217000000.000 0.996016687 2008-08-01 44970517653127.3 44884668000000.000 1.001912672 2008-09-01 45467662308058.0 45289871000000.000 1.003925631 2008-10-01 46075007306321.0 45313332000000.000 1.016809077 2008-11-01 46567909350735.4 45864466000000.000 1.015337437 2008-12-01 47736639128046.0 47516660000000.000 1.004629516 2009-01-01 49443654662296.6 49613530776673.400 0.996576012 2009-02-01 50582745122323.6 50670807000000.000 0.998262079 2009-03-01 52351746897173.6 53062671177858.300 0.986602177 2009-04-01 53630613901348.5 54048121372903.300 0.992275264 2009-05-01 54679056092739.4 54823076550114.200 0.997372996 2009-06-01 56202442573885.5 56894792000000.000 0.987831058 2009-07-01 57232589957498.6 57310280000000.000 0.998644396 2009-08-01 57897252553376.9 57669900000000.000 1.003942309 2009-09-01 58819443034194.5 58540530000000.000 1.004764443 2009-10-01 59653803824152.0 58664330000000.000 1.016866703 2009-11-01 60328009490164.8 59460470000000.000 1.014590189 2009-12-01 60758127273599.2 60622500655155.600 1.002237232 2010-01-01 62365333022345.0 62560929175401.200 0.996873509 2010-02-01 63526473999943.7 63607226457206.700 0.998730452 2010-03-01 64011537820301.4 64994746426638.300 0.984872491 2010-04-01 65165033081205.1 65656121695582.600 0.992520292 2010-05-01 66121700786998.1 66335137023124.900 0.996782456 2010-06-01 66574541938163.7 67392172392530.300 0.987867575 2010-07-01 67608432552347.5 67405147894808.300 1.003015862 2010-08-01 69161932294927.4 68750691826412.200 1.005981619 2010-09-01 69963256850897.2 69647149503367.400 1.004538698 2010-10-01 71106179621247.7 69977674085635.200 1.016126651 2010-11-01 71918542886723.9 71033902457308.300 1.012453778 2010-12-01 72456138694402.5 72585178555593.300 0.998222229 2011-01-01 73206807090873.4 73388493378832.400 0.997524322 2011-02-01 73583038446892.3 73613095848151.700 0.999591684 2011-03-01 74545672449355.9 75813098162833.600 0.983282233 2011-04-01 75272047016855.8 75738464121629.700 0.993841741 2011-05-01 76167239770290.5 76340931367226.400 0.997724791 2011-06-01 77126471145022.0 78082096627241.100 0.987761273 2011-07-01 77756333168635.5 77292369450324.100 1.006002711 2011-08-01 78748962683784.3 78085234092749.300 1.008500053 2011-09-01 79025304718898.6 78740623951675.500 1.003615424 2011-10-01 82929765744685.0 81682928502654.000 1.015264355 2011-11-01 83415577774287.1 82549398017113.300 1.010492866 2011-12-01 84685230520316.8 85159093578679.200 0.994435555 2012-01-01 85423492960821.3 85589889139657.600 0.99805589 2012-02-01 86714616235261.1 86717141785883.800 0.999970876 2012-03-01 88017766042754.5 89556549664190.300 0.982817743 2012-04-01 88550675664396.7 88960403617308.700 0.995394266 2012-05-01 89877102142211.8 90004877427416.800 0.998580352 2012-06-01 91372823879780.8 92499119943634.200 0.98782371 2012-07-01 92571204809919.5 91907240194736.700 1.007224291 2012-08-01 93385489587996.2 92489458650000.000 1.009687925 2012-09-01 94614318094951.8 94368875340000.000 1.002600887 2012-10-01 95035523750739.6 93640427920000.000 1.014898435 2012-11-01 95402190498725.7 94483235000000.000 1.009726122 2012-12-01 96687387360714.1 97414880200000.000 0.992532015 2013-01-01 99046424124748.8 99212925225443.200 0.99832178 2013-02-01 99875046210034.0 99860082892266.100 1.000149843 2013-03-01 101781952382820.0 103585837066030.000 0.982585605 2013-04-01 102859968950657.0 103255190300943.000 0.996172383 2013-05-01 104113596375454.0 104216916212108.000 0.999008608 2013-06-01 104159784065365.0 105440369294308.000 0.987854887 2013-07-01 106045769110030.0 105221234430136.000 1.0078362 2013-08-01 107216843946953.0 106125642579219.000 1.010282165 2013-09-01 107963464701924.0 107737916304772.000 1.002093491 2013-10-01 108598851902092.0 107024216664233.000 1.014712887 2013-11-01 108934061590068.0 107925705547773.000 1.009343057 2013-12-01 109717755589677.0 110652497992422.000 0.991552451

If China's capital markets were fully open (which they are not), explain as a hedge fund manager how you might arbitrage the seasonal difference in credit demands between China and the United States.

Suppose new ways of holding wealth start to appear in China (as in the case of Taobao and other Internet bankers offering high-yielding money market funds). a. Explain the impact on bank deposits (sight deposits, for example) as Chinese citizens learn of these opportunities. b. Is the arrival of this alternative a good or bad thing? What might be the impact on the prices in equity or real estate markets? c. Why might China's Banking Regulatory Commission (CBRC) cast a wary (regulatory) eye toward such new asset classes?

Explain the notion of "directed credit" and its relative importance in China compared to the United States as a tool of monetary policy.

In the first half of September 2014 it was estimated that China's PBC lent the five largest Chinese banks around RMB 100 billion to spur slowing economic growth. a. Using some economic model discussed in this chapter explain how this policy is intended to have an impact on the real economy. b. Because the injection of high-powered money came not through open market operations but through some of the other monetary policy tools (such as discount window lending) discussed in this chapter, Western economists criticized the move as a step backward in terms of financial market liberalization in China. Discuss.

Explain China's relatively large holdings of M1 in terms of the transactions motive, precautionary motive, or holding of wealth motive. In terms of excess money holdings (relative to the United States), which factor appears more important?

Explain why in periods of normal economic growth, capital adequacy types of rules will allow for more rapid loan growth in China than in the United States. Explain why in times of financial turmoil, when companies are losing money, such rules may slow lending growth more dramatically in China compared to the United States.

Go to FRED (the Federal Reserve Economic Database) and provide three different charts depicting China's money supply, with at least one in terms of China's real money supply.

Using the Walras relationship, explain the impact of an excess supply of money on other asset prices (the prices of other ways of holding wealth) in China. Be specific about which assets you are referring to. Consider the following table with two assets: Money and All Other Assets (e.g., real estate, stocks and bonds). Money All Other Assets Total Wealth () Demand 800 500 1300 Supply 1000 300 1300 Excess DD (+) or -200 +200 0 (-)