Themodel estimation and policysuggestions of the Chinese Money Demand Function

Abstract

Abstract: Based on the co-integration test findings, this paper constructs an error correctionmodel (ECM) to evaluate the dynamic adjustment process of money demand in China from 1992 to 2012. The co-integration test suggests that a certain long-run relationship exists among money demand, real income, inflation rate and interest rate. But, the ECM shows that the dynamic adjustment process of money demand maintains unstable. Moreover, with the constant promotion of interest rate liberalization and the improvement of financial markets, the money demand function will become much more unstable than before. Therefore, the short-term money growth rate cannot be predicted precisely, we should adjust the intermediate targets of monetary policy timely to promote the healthy development of China's economy.

Key words: money demand, ECM, interest rate elasticity, income elasticity, policy suggestions

CLC Number:

F204

Dong Huijun, Song Yinqiu, Lv Ping. Themodel estimation and policysuggestions of the Chinese Money Demand Function[J]. Science Research Management, 2015, 36(8): 136-143.

References

[1] Subramanian S. Sriram. A survey of recent empirical money demand studies[J]. IMF Staff Papers.2001. 47(3):334-342. [2] 高铁梅等.计量经济分析方法与模型[M].2版.北京:清华大学出版社,2009. Gao Tiemei. Econometrics: Methods and models[M].Beijing: Tsinghua University Press,2009. [3] Chow, G.Money and price level determination in China[J]. Journal of Comparative Economics.1987.11, 319-333. [4] Feltenstein, A., and Z. Farhadian. Fiscal policy, monetary targets, and the price level in a centrally planned economy: An application to the case of China[J]. Journal of Money. Credit and Banking.1987.19.137-56. [5] Hafer, R. W., & Kutan, A. M. Economic reforms and long-run money demand in China: Implication for monetary policy[J]. Southern Economic Journal.1994.60.936-945. [6] 项后军等. 开放框架下的中国货币需求函数稳定性问题研究[J]. 经济评论,2011(5):47-56. Xiang Houjun. Study on the stability of money demand function of China against the background of open framework: From the perspective of structural changes[J]. Economic Review. 2011(5):47-56. [7] Saten Kumar. Financial reforms and money demand: Evidence from 20 developing countries[J]. Economic Systems.2011.9. 323-334. [8] Mohsen Bahmani-Oskooee. Monetary uncertainty and demand for money in korea. [J]. Asian Economic and Financial Review.2014.4.317-324. [9] Drama Bedi Guy Herve. The demand for money in cote d'ivoire: Evidence from the cointegration test[J]. International Journal of Economics and Finance.2011.3.188-197. [10] Sahar Bahmani. Exchange rate volatility and demand for money in less developed countries[J]. Journal of Economics and Finance.2013.37.442-452. [11] Ronghua Chen. The gray relevance analysis about the affecting factors of China's demand for money[J]. International Conference on Education Technology and Management Science.2013.5-7. [12] Haomiao Zuo.Sung Y. PARK. Money demand in China and time-varying cointegration[J]. China Economic Review.2011(22).330-343. [13] Chun Ping, Chang &Chien Chiang Lee. The demand for money in China: A reassessment using the bounds testing approach[J]. Journal for Economic Forecasting.2012.1.74-94. [14] Chien Chiang Leea. An Hsing Chang. Revisiting the demand for money function: evidence from the random coefficients approach. [J]. Quantitative Finance. 2013.13. [15] 王少平,李子奈. 我国货币需求的协整分析及其货币政策建议[J].经济研究,2004(7):9-17. Wang Shaoping. Li Zinai. The cointegration analysis of China' s monetary demand and the monetary policy proposals[J]. Economic Research Journal, 2004(7):9-17. [16] 杨思群.中国货币需求:实证研究与政策含义[J].经济学动态,2011(3):59-64. Yang Siqun. Chinese money demand: Empirical research and policy implications[J]. Economic Perspectives, 2011(3):59-64. [17] 汪红驹.用误差修正模型估计中国货币需求函数[J].世界经济,2002(3):55-61. Wang Hongju. Chinese money demand function: Error correction(ECM) model[J]. World Economy, 2002(3):55-61. [18] 弗雷德里克·S·米什金.货币金融学[M].北京.中国人民大学出版社,2009(9). Frederic·S·Mishkin. The economics of money, banking and financial markets[M].Beijing. China Renmin University Press,2009(9). [19] 胡庆康.现代货币银行学教程[M].上海.复旦大学出版社,2006(4). Hu Qingkang. Modern money and banking[M].Shanghai. Fudan University Press,2006(4). [20] Tobin J. The interest elasticity of transactions demand for cash[J]. Review of Economics and Statistics,1956(38):241-247. [21] 曼昆. 宏观经济学[M].北京.中国人民大学出版社,2011(6). Mankiw. Macroeconomics[M]. Beijing. China Renmin University Press,2011(6). [22] 杰弗里.萨克斯等.全球视角的宏观经济学[M].上海.上海人民出版社,1997. Jeffrey Sachs. Macroeconomics in the global economy[M].Shanghai. Shanghai People's Publishing House,1997 [23] 李子奈,潘文卿. 计量经济学. [M]. 北京.高等教育出版社.(3).2010. Li Zinai, Pan Wenqing. Econometrics. [M]. Higher Education Press.(3).2010.