A Empirical Study Of The Demand For Money In China

Making monetary policy has a key assumption which requires a stabile relationship between monetary aggregate and its determinants such as gross income, interest rate or inflation. Since 1994 China has turned its monetary policy operation from direct control of credit to indirect control of monetary aggregate which included adjustment to base money, interest rate and open market operation. In 1995 money supply was introduced as a triable medium aim of monetary policy and in 1996 it became a formal medium aim. So it's meaningful for Chinese center bank to analyse Chinese demand for money and seek if there is a stable demand function for money, which is why I choose this topic.This paper includes five chapters: the first chapter introduces background of the study and general method used in the paper; the second chapter states development of theory of demand for money; the third chapter summarizes both oversea and domestic empirical studies on demand for money; the fourth chapter analysizes variables's choice in Chinese model of demand for money; and last one dose empirical work of the paper and summarizes the results.The conclusions of the paper include:1. There exit cointegrations between monetary aggregates(Ml,M2) and gross income, real interest rate and anticipated inflation, which mean there are stable long-term relationships amony these variables. So it's feasible for Chinese center bank to choose monetary aggregates as medium aim of monetary policy in terms of correlation between a middle aim and a final aim.2. Ml and M2 are sensitive to change of real interest rate and anticipated inflation, and semi-elasticity of the latter to money is bigger than the former's. So we should put more attention on inflation during making money aggregate aims.3. The short-term function of demand for M2 is stable and the one of Ml is instable. So we should choose M2 as a medium aim of money policy and Ml as an important referrence.