The Analysis Of Money Demand In China And Its Stability

In the existing papers about empirical money demand in China, there are three points that we could discuss further. First, most of these papers admit there is a stable money demand in the long run, but in the short run, they did not reach agreement. Second, a necessary test was omitted while they were transforming the two types of functions. Third, Chinese government raised nominal interest rate recently but it was not considered in their sample period. Based on these points, we use the modern econometrics method to estimate the quarter money demand function in China from 1994 to 2006 and the following conclusions are drawn: first the major factors and money demand has long term relationship; second these variables short term fluctuation have no stable relationship; third M1 is relatively more stable than M2.Also some policy implications are given.