Understanding Money Demand in the Transition from a Centrally Planned to a Market Economy

Anne-Laure Delatte and Carsten Holz
Authors registered in the RePEc Author Service: Julien Fouquau

No 9721, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Fundamental changes in institutions during the transition from a centrally planned to a market economy present a formidable challenge to monetary policy decision makers. For the case of China, we examine the institutional changes in the monetary system during the process of transition and develop money demand functions that reflect these institutional changes. We consider seasonal unit roots and estimate long run, equilibrium money demand functions, explicitly taking into consideration the changes in the institutional characteristics of China's financial system. Using a newly compiled dataset that covers an unprecedented long time period of 1984-2010 at the quarterly frequency, we are able to draw conclusions on the transitions in households', firms', and aggregate money demand, on the role of the credit plan and interest rates, on the mechanisms of macroeconomic control during economic transition, and on theoretical questions in the development and money literature.

Keywords: Chinese economy; Cointegration; Complementary hyopthesis; Money demand; Seasonal unit root (search for similar items in EconPapers)
JEL-codes: C51 E41 O11 P24 P52 (search for similar items in EconPapers)
Date: 2013-11
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-tra
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