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Asymmetric effects of exchange rate changes on the demand for money in China

Mohsen Bahmani-Oskooee (), Dan Xi and Sahar Bahmani

Applied Economics Letters, 2016, vol. 23, issue 15, 1104-1109

Abstract: In order to account for currency substitution, the majority of recent studies relating to the specification of the demand for money include the exchange rate as another determinant of the demand for money. However, those who have estimated the demand for money in China have been unable to find any significant effects of exchange rate changes on the demand for money by the Chinese. We show that this is due to the assumption that exchange rate changes have symmetric effects. Once depreciations are separated from appreciations of the yuan, those exchange rate changes are shown to have significant effects on the demand for money in China, but in an asymmetric manner.

Date: 2016
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Handle: RePEc:taf:apeclt:v:23:y:2016:i:15:p:1104-1109