Abstract: Whether money supply is endogenous and what is the extent of the endogenesis are closely related to the effectiveness of the monetary policy of the central bank, whose intermediate target is associated with money supply. Based on the data from the second quarter of 2001 to the second quarter of 2011, this empirical analysis finds that China’s money supple tends to have a stronger and stronger endogenesis, which is mainly reflected in the following aspects: (1) the money multiplier fluctuates greatly in the short-term, extremely unstable; (2) there exists an unstable relationship between the money supply and the monetary base, i.e. the money multiplier has no predictability even in a long term; (3) the changes of base money are greatly affected by the changes of the foreign exchange reserve and the changes of the central bank’s policy on the bonds of the deposit banks; (4) there exists an opposite changing tendency between the base money and?money multiplier. Therefore, we should reform the existing mandatory foreign exchange settlement and sales system, improve the budget restricting mechanism for the state enterprises and banks, raise the conditions for re-loan, strengthen the supervision of the operational behavior of the commercial banks, and actively boost the reform of interest rate marketlization.

Key words: money supply; endogenesis; money multiplier; base money