Abstract: Based on the central bank balance sheet,the impact of changes in foreign exchange reserves and monetary policy on the money supply is analyzed in terms of the money supply delivery channels of foreign exchange reserves and domestic credit, followed by an empirical test of the macroeconomic effects of changes in foreign exchange reserves by constructing a VAR model with purely symbolic constraints. The results show that during the boom period, China's monetary policy from partial to full to tight monetary policy effectively eliminates the inflationary pressure triggered by the increase in foreign exchange reserves; during the contraction period, the decrease in foreign exchange reserves does not have a significant downward trend on the current persistently low level of inflation; in addition, the monetary instrument of regulating domestic credit is more effective during the period of foreign exchange reserve contraction, as shown by the positive effect of the decrease in foreign exchange reserves on In addition, the monetary instruments to regulate domestic credit are more effective during the period of foreign exchange reserve deflation, as shown by the positive impact of foreign exchange reserve reduction on domestic credit in the short run; the impact of foreign exchange reserve reduction on output and exchange rate is not significant. It is recommended to improve the foreign exchange reserve management system, strengthen the counter-cyclical regulation of monetary policy, and promote the reasonable and moderate growth of domestic credit.

Keywords: foreign exchange reserves; purely symbolic constraint; monetary policy; central bank