Abstract: Based on the division of the bank excess reserve into precautionary excess reserve and involuntary excess reserve and taking the involuntary excess reserve as the liquidity indicator of banking system, this paper examines the fluctuation mechanism of the involuntary excess reserve and its influence on the macroeconomic fluctuation mechanism. It is found that the involuntary excess reserve had a cyclical fluctuation trend during the period from 1998 to 2010 under the comprehensive function of funds outstanding for foreign exchange and bank loans. And the accumulation of involuntary excess reserve has a negative effect on output, price and bank loan in the short term, but has positive effect in the long term; thus the macroeconomic fluctuations will be amplified and intensified. Under this circumstance, the monetary authority should cautiously conduct fine tuning operations on the involuntary excess reserve during its liquidity management process, so as to realize the smooth running of the macro economy.

Key words: involuntary excess reserve; macroeconomic fluctuations; difference correlation coefficient; VECM