BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 27/2011:
Explaining money demand in China during the transition from a centrally planned to a market-based monetary system
Anne-Laure Delatte ()
, Julien Fouquau and Carsten A. Holz
Abstract: We examine the transition process from a centrally planned
to a market-based monetary system in China, with the objective of giving a
functional form to the transition in money demand. Applying the
cointegrating Time-Varying Smooth Transition Regression model proposed by
Choi and Saikkonen (2004) on a constructed dataset spanning the period from
1984 to 2010, and using a seasonal unit-root test developed by Hylleberg et
al. (1990), our findings invalidate much of the earlier literature. Our
examination of disaggregate as well as aggregate money balances yields the
following findings. (1) Households have an infinite demand for money at
prevailing interest rates.
(2) Enterprises have gradually gained
decision-making authority over their deposits.
(3) Money is a
complement rather than a substitute to capital and this has become more
prominent over the period.
(4) The credit plan has ceased to be a
significant driver of money holdings after 1997.
(5) In the aggregate
monetary sphere, the deposit interest rate has gained only a minor role as
a monetary instrument, and only since 2000.
Keywords: money demand; cointegrating time-varying smooth transition regression model; seasonal unit-root test; Chinese economy; (follow links to similar papers)
JEL-Codes: C51; E41; O11; P24; P52; (follow links to similar papers)
62 pages, October 25, 2011
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