We publish our undergraduate papers annually in autumn to highlight the breadth and quality of work produced by our undergraduate students. View the 2017 and 2018 volumes below.
Volume 3: Autumn 2019
‘The economics of terrorism: An empirical investigation into the long-run effects of terrorism on economic growth’ by Abdullah Farhad
Download: The economics of terrorism: An empirical investigation into the long-run effects of terrorism on economic growth by Abdullah Farhad
Terrorism has become an increasingly important topic following the attacks on the World Trade Centre in 2001. Following this incident, an array of literature has evaluated the effect of terrorism on various economic indicators; the most widely covered of these indicators being economic growth. We seek to build upon this existing literature to modernise the research on terrorism and long-run economic growth. We seek to estimate this relationship using regression analysis to investigate the question: Does terrorism have an adverse effect on longrun economic growth? Our results present some evidence of a long-run impact of terrorism on economic growth when excluding for time-effects, although these effects are not sustained into the next period.
‘Rolling Dice and Being Nice: Using Behavioural Economics to Understand the Link between Socioeconomic Status and Prosocial Behaviour’ by Jamie Haley
This paper applies behavioural economics using the board game Monopoly in order to examine how socioeconomic status -determined by income, occupation, and education- affects prosocial behaviour -activity that benefits the wellbeing of others. Existing literature was surveyed to establish a hypothesis and then an experiment was conducted to test against it. Monopoly was used as a proxy for real life with competitors playing multiple 1v1 rounds with winners awarded £5 per win and an opportunity to make donations to charity. Rules of the game were amended to create high and low in-game socioeconomic statuses (SES). Logistic and linear regression modelling was used to assess how in-game SES, real-life SES, and other factors affected propensity to donate and size of donations. Analyses found mixed results and a weak conclusion was formed suggesting a negative correlation between SES and prosocial behaviour, both in probability and donation size.
‘How does Coral Reefs Degradation Impact upon Marine Capture Fisheries, and How Can the Tragedy of the Commons Be Solved? A Case Study of the Philippines 1997-2015’ by Marina Fuentes Juan
Coral reefs and fisheries ecosystems have become increasingly important for the Philippines’ population. This paper explores the ecological indicators of these ecosystems to identify possible degradation and overfishing. Moreover, economic and social indicators will show the impact of the degradation of these ecosystems on the economy and the society. This dissertation looks at the tragedy of the commons literature and follows the appropriate frameworks to recognise the nature of the problem looking at governance indicators. Findings show that if the institutions of the Philippines had been more robust over the past decades, the coral reefs and the fisheries would be in better conditions.
‘Can Human Capital Theory Alone Explain the Variation in the Gender Pay Gap throughout the United Kingdom? A Comparative Case Study of England, Scotland, Wales and Northern Ireland’ by Courtney Owens
Download: Can Human Capital Theory Alone Explain the Variation in the Gender Pay Gap throughout the United Kingdom? A Comparative Case Study of England, Scotland, Wales and Northern Ireland by Courtney Owens
Human capital theory has been widely used to explain the gender wage differentials predominantly in the US. This dissertation explores the relationship between human capital and the gender pay gap in the context of the United Kingdom (UK). The paper looks at the gender pay gap variations between nations within the UK and attempts to determine whether these variations are attributable to differences in human capital alone. Past literature is examined to provide an understanding of the development of human capital theory. The critiques of feminist economists are also reviewed to evaluate the theory. The methodology is then discussed, with the key weaknesses and limitations being identified. The paper then analyses the data in an attempt to determine the cause of gender pay gap variations throughout the different countries in the UK. Finally, the dissertation concludes that human capital theory alone cannot explain the gender pay gap. The paper finds that public sector employment may be a contributory factor.
‘Is There Evidence of Real Economic Convergence in the European Union Before and Following the Financial Crisis of 2008?’ By Edward Rushworth
Download: Is There Evidence of Real Economic Convergence in the European Union Before and Following the Financial Crisis of 2008? By Edward Rushworth
Economic convergence enhances the effectiveness of policy, increases resistance to asymmetric shocks, and encourages greater levels of economic prosperity and macroeconomic equality. With regards to the European Union (EU), whilst literature confirms pre-crisis convergence, works on post-crisis Europe has fallen victim to short time-samples, and incomplete data sets due to the omission of newer members of the Union. This paper calculates up to date regressions using a fixed-effects model, and measures dispersion using coefficients of variation to test for β and σ-convergence for real Gross Domestic Product (GDP) and Unemployment. In conclusion, this paper finds statistically significant evidence of βconvergence for pre-crisis Europe (1995-2008) and the entire period considered (1995-2014) for both real GDP and unemployment rates, but no evidence of post-crisis (2009-2014) convergence for either. Pre-crisis σ-convergence tends downwards for real GDP, though this is largely driven by rapid falls in dispersion across the EU-13, as the EU-15 experiences gradual divergence almost constantly. Unemployment rates converged between 2000 and 2007, but have sharply diverged following the crisis, spelling fears of hysteresis and permanent damage to the labour market.
‘Why Unemployment in the United Kingdom did not Increase as much as Expected During the Great Recession?’ by Anastasia Tsangaridou
Download: Why Unemployment in the United Kingdom did not Increase as much as Expected During the Great Recession? by Anastasia Tsangaridou
Following the recent financial crisis, the United Kingdom came up against the worst diminutions of Gross Domestic Product compared to past experience. However, patterns of unemployment have surprisingly been lower than expected. This dissertation is commissioned to demonstrate the reasons why unemployment did not increase as much as expected during the Great Recession compared to past experience. The main reasons presented in the literature were: the increase in labour flexibility, the reduction on productivity and macroeconomic policies. This paper goes further and examines the effect of bank rescue plan as a possible explanation to the unemployment patterns in 2008. The main conclusions to be derived is that, even though all motives can be partly supported to some extent, macro policies and flexibility are mostly supported by evidence as the motives for unemployment trending emphasizing the important role of policymakers during the Great Recession. It is also suggested that bank rescue plan had mainly short run and non-sustainable effects.
‘The Impact of Foreign Direct Investment on Employment in Romania: A Panel Data Investigation’ by Oana-Corina Tuinea
Download: The Impact of Foreign Direct Investment on Employment in Romania: A Panel Data Investigation by Oana-Corina Tuinea
This dissertation aims to establish the existence, size and significance of the impact of foreign direct investment (FDI) on employment across sectors in Romania. The question stems from approaching FDI through a microeconomic perspective and hypothesizing on what its impacts would look like at a higher level. As highlighted in the literature features of new foreign investments, such as entry mode or investor motivation may create and destroy jobs in the host economy. These effects may aggregate themselves at a sector level since each sector has its specific points of attraction to investors. Hence the key hypothesis tested is whether FDI unilaterally increases employment across all sectors or whether its benefits are unevenly distributed and sector-specific. The hypothesis is verified through panel data fixed effects and random effects regressions. The estimated coefficients on FDI stocks are indeed positive yet of rather different magnitudes across sectors. The results are discussed at length in relation to Romania’s position as a transition economy in the hope of bringing another perspective on the Romanian government’s one-size-fits-all approach to foreign investment attraction.
Volume 2: Autumn 2018
Download: Parental leave in the UK – an investigation from a company perspective by James Carrick
This dissertation thesis researches the current parental leave policies offered in the UK from a company perspective. A business case argument for offering parental leave policies above and beyond the statutory minimum was also constructed. As a result, this thesis has attempted to fill a gap in current literature surrounding this topic by offering an updated view of parental policies in the UK from a company perspective. A qualitative research design was adopted using in-depth semi-structured interviewing as a means for data collection. Findings highlighted three common themes, financial affordability, talent management and gender diversity. Interviewees expressed strong views in favour of the new shared parental leave policy recently introduced. However, the importance for paid leave above and beyond the statutory minimum was also stressed. It was, however, recognised that the ability of firms to offer such policies is dependent on firm size and industry sectors. A general consensus also developed where interviewees felt generous parental leave policies provides a vehicle for effective talent attraction and talent retention. Finally, it was felt that gender diversity and gender equality would be enhanced, thus benefiting business. Overall, it was found that the implementation of said policies is profitable for business according to the sample.
Download: The implications of population ageing for the stock market in the United Kingdom by Edward Cave
The aim of this paper is to investigate whether population ageing has implications for the FTSE all share stock market in the UK. This paper first identifies if population ageing is occurring in the UK by examining the proportion of the population above 65, before then investigating fertility rates and life expectancy to determine if population ageing will continue. This paper then reviews the life cycle hypothesis, which suggests a theoretical relationship between demographics and the stock market exists. To identify if this is the case a time series econometric study is constructed from 1963 to 2014, using vector error correction and vector autoregression, as well as Wald Granger causality, variance decomposition and impulse response functions, to determine long run and short-run relationships. This paper finds that population ageing is in fact occurring in the UK and that there is a weak statistical relationship between the prime saving 40 to 64 cohort and the stock market, consistent with the lifecycle hypothesis. However, a relationship was not found for the population ageing 65+ cohort, suggesting that population ageing does not currently have implications for the stock market in the UK. Following these results this paper critically evaluates the reasons for statistical insignificance in the UK 65+ cohort and suggests future developments in the methodology.
'How has the European Central Bank’s Targeted Longer-Term Refinancing Operations (TLTROs) affected lending to households and non-financial corporations in Italy?' by Lara Ferguson
Since June 2014 the European Central Bank (ECB) has implemented unconventional monetary policies to tackle weak growth, persistent below-target inflation and to support lending to the real economy. One of these policies was the Targeted Longer-Term Refinancing Operations (TLTROs) which provided ultra-cheap loans to banks, provided that banks increase lending to non-financial corporations (NFCs) and households. This paper investigates the policy’s impact in Italy, where the annual growth in lending to NFCs has been negative since 2012 and interest rates are elevated above their European counterparts. The analysis addresses the gap in the literature by investigating the effect of the programme on households and firms, extending the inquiry beyond the financial conditions that previous literature has focused on. A narrative approach is used to estimate the effect of the TLTROs on interest rates and loan supply, whilst investigating loan demand by the real economy assesses whether this acted as a constraint. This paper also investigates whether critiques of the programme have hindered its success in Italy. The results show the TLTROs success has been to considerably lower interest rates in Italy. Despite slowing the pace of decline of lending to NFCs and households, considerable improvements are needed before lending returns to pre-crisis trends.
Download: To what extent do investment barriers influence FDI flow into China? by Vivian Wangari Karanja
The People’s Republic of China has recently experienced an incredible rise in FDI inflow despite being totally closed to foreign investors as recently as 1979. Despite this increase, several investment barriers into China persist. Many different authors have empirically investigated the determinants of FDI into developing countries. However, this study employs a panel data method to analyse the relationship between investment barriers and FDI inflows in the time between 2006 and 2014 from a sample of 83 countries. This is done in conjunction with other explanatory variables, namely: GDP, human capital investment, investment in infrastructure, Corporate Tax rate and Real Effective Exchange Rate. This study finds that investment barriers have a negative but statistically insignificant effect on FDI inflows into China.
'What motivates altruistic behaviour? How could policymakers incentivise future blood donation rates in the UK?' by Olivia Kiernan
Download: What motivates altruistic behaviour? How could policymakers incentivise future blood donation rates in the UK? by Olivia Kiernan
This paper offers an interdisciplinary exploration of behavioural theory beyond the conventional microeconomic framework, in an attempt to better understand why agents act in the interests of others. It then uses these behavioural ideas to propose how UK policymakers could better incentivise future blood donation rates, in response to an anticipated supply shortage induced by an ageing population. The three themes of reputation, reciprocity and social integration as motivators for altruistic behaviour are derived from lessons of the social sciences beyond the field of economics and their relevance in the case of blood donation is tested by investigating survey response data and the character profiles of existing donors. It is concluded that if policymakers accept that agents are not motivated solely by self-interest and monetary gain, a whole continuum of well-designed, theoretically informed incentive options exists in between the current system, where donors are entirely unrewarded for their blood product, and a commercialised one.
Download: Are Worker Cooperatives in the UK Liable to the Issue of Adolescence? by Georgina O’Sullivan
Historically, the cooperative movement in its various global forms has been surrounded by debate. Within existing literature, most empirical exploration has been focussed on countries outside of the UK. As such, little is known about worker cooperatives in the UK. Using new data, with a maximum of 3,287 observations across 10 years, this dissertation aims to add to the literature by closely examining the survival rates and nonparametric hazard curves of worker cooperatives in the UK, broken down by geographical location and industry. These comparisons will be drawn in order to assess whether geographical and industry differences influence the survival chances and hazard rates of worker cooperatives in the UK.
'The Nature of The UK’s Endogenous Money System, and Basel III’s Impact on Post-Crisis Lending' by Guy Edward James Poxon
Download: The Nature of The UK’s Endogenous Money System, and Basel III’s Impact on Post-Crisis Lending by Guy Edward James Poxon
This study aims to determine the impact of Basel III on the UK’s credit supply. Endogenous money theory is used to discuss the credit supply. Horizontalism implies unrestricted short term lending, while structuralism incorporates liquidity preference of central banks and commercial banks in the short run. Basel III’s regulatory framework is then outlined, and its theoretical effect on the UK endogenous money system is discussed, attempting to put Basel III into the theory’s framework. In order to provide evidence on Basel III’s impact, time series econometric analysis to compare M4 growth, M4 lending growth, and the rate of change of UK commercial banks’ assets is used. M4 growth represents the level of reserves accommodation by the Bank of England, and M4 lending growth represents UK commercial bank lending. The inclusion of the rate of change of UK banks’ assets captures the broad effect of Basel III’s framework, and determines how the Bank of England as well as UK banks respond to increased capital requirements. This study tests for structural breaks in tandem with Figureical analysis to determine that changes in the relationship between banks and the Bank of England correspond with Basel III’s date of implementation.
Download: Does unemployment lead to hazardous drinking? An empirical study by David Sadler
Establishing a link between unemployment and alcohol use can be beneficial for both advising macroeconomic policy, and targeting alcohol education and treatment programs. The link is especially important when applied to the U.K. context, given the current cost to England’s National Health Service of alcohol related harm, following the worst economic recession the economy has seen for decades. This dissertation explores the effect of unemployment on alcohol use, by using econometric analysis in the form of a binary dependent variable model, whilst controlling for income and demographic variables. The regression analysis shows that being unemployed does increase the likelihood of hazardous drinking, whereas a respondent’s level of income has little impact. Thus, this dissertation concludes that unemployment does increase the likelihood of hazardous drinking due to the societal stress impact of being unemployed.
'The Effect of Childcare Costs on Maternal Labour Force Participation in the United Kingdom' by Eleanor Travers
Download: The Effect of Childcare Costs on Maternal Labour Force Participation in the United Kingdom by Eleanor Travers
This dissertation investigates the effect of childcare costs on maternal labour force participation in the UK. A bivariate probit model is used to estimate the joint decision of British mothers participating in the labour force and using a formal childcare provider, controlling for the effects of demographic, income and household composition characteristics. Selectivity-corrected estimates of wages and childcare costs are used to eliminate sample selection bias. The results are contrary to previous research, showing childcare costs no longer significantly, negatively affect maternal labour force participation. Childcare costs are found to be positively associated with formal childcare use and labour force participation, whilst wage is found to have no significant effect. Policy changes have been considerable since the majority of research has been published and could partly explain the differing outcomes of this model.
Download: The Impact of School Quality on Property Prices by Joseph Wild
This dissertation applies a hedonic house price model to the city of Sheffield, England to assess the impact of school quality on property prices. Best practice methodology typically applied in US studies has been applied to UK data, using the English Indices of Multiple Deprivation (IMD) to control for neighbourhood characteristics at a highly disaggregated level. For the first time in the UK, actual school catchment areas are used, distinguishing this dissertation from the existing literature, which typically applies a ‘straight line distance to the nearest school’ approach. A robust OLS regression model is built sequentially to control for property and neighbourhood characteristics, before isolating the impact of school quality. The findings show that houses in catchment areas with 10% more children achieving 5A*-C at GCSE level can command 7.85% higher house prices. A review of the literature is presented and the rationale for the chosen methodology and variables is discussed, followed by a presentation of the results, which were found to be highly robust.
Volume 1, Autumn 2017
'The effects of weather on wheat yields in Victoria, Australia: an empirical study' by Jess Arkesden
Download: The effects of weather on wheat yields in Victoria, Australia: an empirical study by Jess Arkesden
This study looks at the impacts that weather variables have on wheat yields in the state of Victoria, Australia. Both basic measures (temperature and precipitation) and complex measures (evapotranspiration rate and the Standardised Precipitation Index) are used. Econometric analysis is used to estimate the effect these variables have on wheat yields for 1953-2011, whilst including non-linear, interaction terms and dummy variables for extreme weather events. The regression results show that variations from the average temperature and rainfall have a negative impact on yields. However, drought has a larger and more significant impact on wheat in Victoria than changes in precipitation.
Download: The impact of quantitative easing on financial markets in the United Kingdom by James Barrie
Following the global financial crisis, the Bank of England was forced to take dramatic measures in an attempt to improve the UK economy. In March 2009, the Bank of England launched an unprecedented, large-scale asset-purchasing programme called quantitative easing. By October 2012, the Bank had bought £375bn worth of assets, primarily government bonds. This paper attempts a provisional evaluation of the impact of quantitative easing on financial markets in the UK and, to a lesser extent, the economy more generally. At this point in time, it is very difficult to assess these impacts by conventional means. As a result, prior studies have typically used event study analysis in attempts to quantify the policy’s impact. After reviewing the event study literature, the findings from the paper’s own qualitative survey of financial market experts are presented. We are able to draw two main conclusions. Firstly, the policy has had a significant effect on financial markets in much the way that was both intended and expected. In so doing, it is believed that quantitative easing will also have played an important role in stabilising the economy following the recession. This study points to a negative effect of around 50 basis points on gilt yields. However, it remains difficult to estimate the exact size of the effect that the policy has had. Secondly, the evidence suggests that the policy’s main influence came through a portfolio rebalancing channel. As always, there is more research that can, and will, be done and it’s hoped that the survey-based approach adopted by this paper can be extended in the future.
'The Impact of the ‘One-Child Policy’ on China’s Aggregate Household Savings – An Econometric Analysis' by Lele Ding
Download: The Impact of the ‘One-Child Policy’ on China’s Aggregate Household Savings – An Econometric Analysis by Lele Ding
The purpose of this dissertation is to explore the impact of the One-Child Policy on China’s aggregate household savings. There are four proxies for the One-Child Policy: the total fertility rate, annual population growth rate, age structure, and gender ratio. The purpose of this dissertation thus has been achieved by investigating the statistical relationships between these four demographic factors and China’s aggregate household savings, in light of the theory of Life-Cycle Saving. An ordinary least squares regression model has been conducted based on the cross-sectional annual data from the National Bureau of Statistics of China and the World Bank for the period of 1980-2012. The results of multiple regressions illustrate that the One-Child Policy has a statistically significant relationship with China’s aggregate household savings.
Download: How Has Inequality Been a Cause of Violence in Post-dictatorship Brazil? by Samson Hart
This thesis explores the relationship between violence and inequality, beginning with an assessment of the historical context of violence and inequality in Brazil, and a review of the literature on these topics. The thesis goes on to qualitatively assess relevant theoretical frameworks, namely from Amartya Sen on inequality and Johan Galtung on violence, to develop a theoretical understanding of both the concepts of inequality and violence, in order to provide a more focused conceptualisation and a basis for their measurement. Finally, this thesis sets out a quantitative case study analysis of the relationship between violence and inequality in Brazil from 1985-2012, referring to different sources of data. The paper concludes that, given the limitations of the study, the data does not necessarily prove a causal relationship between inequality and violence. It does, however, provide enough evidence to call for the use of redistributive economic policy as a long-term preventative measure of violence.
'Is a trade-off between justice and efficiency inevitable? A comparative study of European welfare states between 2001 and 2013' by Kasia Lipka
The trade-off between justice and economic efficiency is a key debate in welfare state economics. This study addresses whether a trade-off is inevitable and whether the financial crisis of 2008 has influenced this. An index measure of efficiency and justice is produced in order to conduct both cross-country and cross-time comparisons of performance across three European welfare states: Sweden, Germany and the United Kingdom, before and after the financial crisis. Detailed case studies are conducted to in order to explain the results in policy terms and to determine the conditions under which a trade-off may exist. The following findings are presented; 1) A trade-off between justice and efficiency is not inevitable, but it occurs in certain circumstances, 2) The existence of a trade-off is largely determined by the extensiveness of the tax system and the role of core societal values, 3) The financial crisis of 2008 has had a mixed impact on the existence of a trade-off in European welfare states
Download: Prison Labour: Should the UK follow the US’s example? by Jake Lush McCrum
This paper seeks to assess the impact of the growth of prison labour in the US on its three main stakeholders: the prisoners; the firms employing the prisoners; and society as a whole. It will then explore whether the UK should follow a similar expansion, using in-depth interviews with eight important figures both in- and outside the UK prison industry as well as existing research into current practice. No previous study has compared prison labour in the UK with that in the US. Following analysis of the literature on prison literature in the US and interviews with relevant UK individuals, the paper concludes that prison labour has the potential to have a positive net effect on society.
'How are rating agencies perceived following the US financial crisis? What were their main shortfalls? Insights from academics and professionals' by Timothy Sapsford
This research project looks at how academics and professionals with economics or finance backgrounds perceive rating agencies and their shortfalls following the US financial crisis. The paper attempts to fill a gap in the present literature, namely, the lack of qualitative research depicting people’s perceptions on the subject matter. The researcher engaged in in-depth interviews to retrieve this data, where four central themes were identified: (i) loss of reputation, (ii) conflict of interest, (iii) complexity and lack of judgement and (iv) lack of competition in the industry. The sample believed that rating agencies’ reputation has been negatively affected. Nevertheless, at least some of the interviewees continue to see their overall function in financial markets as positive. The data was inconclusive in regard to whether a change in the business model affected the way rating agencies operate. It showed, however, that the sample believed that conflicting interests were inherent in the current system. The participants also showed their concerns about the complexity of the structured debt and the inability of raters to decipher the risk associated with them. The view that raters lost a grip on reality and lost their sense of judgement was also prevalent. Whilst the majority of participants believed the lack of competition in the industry affected rating
'An econometric study into the impact of the current account on house price growth in the United States' by George Vernon
Download: An econometric study into the impact of the current account on house price growth in the United States by George Vernon
This dissertation investigates the impact of the current account on house price growth in the United States between Q4 1977 and Q4 2013. An econometric analysis is used to estimate the effect of changes in the current account balance on house price growth over the period, whilst accounting for a range of control variables. The regression results show that throughout the period, negative changes in the current account balance were associated with higher levels of house price growth. This finding holds even when controlling for potential reverse causality. However, the econometric model fails to account for all of the variation in house price growth and as such omitted variable bias cannot be ruled out.
'The Effect of the UK’s Smoke Free Law on Smoking Prevalence, Tobacco Related Hospital Admissions and NHS Expenditure – A Discussion Seven Years following the Public Smoking Ban' by Kate Wales
Download: The Effect of the UK’s Smoke Free Law on Smoking Prevalence, Tobacco Related Hospital Admissions and NHS Expenditure – A Discussion Seven Years following the Public Smoking Ban by Kate Wales
The consumption of tobacco is a widely researched and discussed area, particularly in terms of health effects. This dissertation aims to add to current and past literature by discussing the impact the smoke free legislation has had on smoking prevalence, tobacco related hospital admissions and consequently NHS expenditure on tobacco related diseases. Particular analysis will be given in terms of age, gender and occupational classification. The methodology and data used is discussed, giving limitations and reference to the quality. The results present the data between years 1974 and 2013, giving interpretation to the trends found. In conclusion, this dissertation finds that smoking prevalence has been largely uninfluenced by the introduction of the smoking ban and hospital admissions due to tobacco related diseases are yet to decline.
'The Impacts of Immigration on Wages and Unemployment in England: An Empirical Investigation' by George Wibberley
Download: The Impacts of Immigration on Wages and Unemployment in England: An Empirical Investigation by George Wibberley
The economic effects of immigration have become increasingly important within the UK over recent decades but there is no general consensus on the impact of immigration on unemployment and wages. Within the existing literature, a number of authors have attempted to empirically measure the impacts of immigration on labour market outcomes within the UK at a national level. However, my study aims to use regional level data from England across the period 2005 to 2012 to analyse the impacts of immigration on unemployment and wages. My results show that immigration has no significant effects on either unemployment or wages at a regional level.
Download: The Impacts of Digital Currency on China's Monetary System by Qianru Xiang
This dissertation contributes to the evaluation of how digital currency would affect the monetary system by studying the influence on money demand and supply, as well as the velocity of money. After exploring the characteristics of digital currency and comparing functions with fiat currency, this dissertation establishes an econometric model to explore further the relationship between digital currency, money supply and the velocity of money in the China monetary system. In order to quantify the effects of digital currency on the changing amount of fiat currency, by analysing cash ratio, electronic currency level, financial electronic level and interest rate, this research suggests that the extension of digital currency could bring variation to the velocity of money in both the long and short term. Although the initial stage of digital currency limits the results analysis, by discussing the impacts of digital currency on the central bank of China, this dissertation concludes with China’s monetary policy recommendations.