The Analysis Of Money Demand Functions In China During Financial Development

China’s current monetary policy is to regulate the money supply as anintermediate target regulation, which means, China’s monetary polity has completelychanged from the past "lines of credit control" into the current "monetary aggregatesupply control". With the deepening of reform and opening-up process, China’s totalmoney supply grows rapidly year after yea. Broad money (M2) rosed from9.09953trillion yuan in1997to110.650915trillion yuan in2013with an increase of101.551385trillion yuan. The money supply in2013was more than12times of thatin1997.Therefore, in view of the current situation and the regulation mode, in order toget a good policy control effect, it is necessary to understand and analyze thecharacteristics, structure, and factors of China’s demand for money and to constructa precise and stable money demand function under different viewing angles.According to the various explanatory variables in the function, we need to determineand analyze the impact and direction of different factors on money demand, so thatwhen these relevant variables change, we could timely and accurately implementappropriate monetary policy in order to achieve the balance of money supply anddemand and to maintain the country ’s economic and financial stability.In this paper we analyze the affecting mechanism of different factors on moneydemand first, and then analyze China’s annual demand for money function from1997to2013, the first quarter of2000to the fourth quarter of2013included RMBeffective exchange rate of the quarterly monetary quarter of the money demandfunction and the first quarter of2000to the fourth quarter of2013included stock market variables in different views. The statistics and analysis are both from thetheoretical and empirical aspects. In theoretical aspect, we deep analyze the affectingmechanism of different factors on economic agents during the process of China’seconomic transformation and financial development. In empirical aspect, we find along-term structural stability of money demand function, as well as short-termsignificant impact on China’s demand for money factors fluctuations.In this paper, there are eight chapters and each chapter is organized as follows:Chapter1is an introduction, it is mainly on the research background,significance, research ideas and logic, the possible innovation and shortage and themain research methods.Chapter2is a literature review, it summarizes the main research content,methods and results at home and abroad.Chapter3analyzes the affecting factors on money demand during the processof financial development. In this chapter, financial deepening indicators M2/GDP,exchange rates, foreign currency assets and the impact of the stock market on thedemand for money were analyzed. In the meanwhile, China’s monetary demandstructure (M1/M2) were analyzed.Charter4,5,6are empirical analysis sections. In these charters, China’s annualdemand for money function in1997-2003, the first quarter of2000to the fourthquarter of2013included RMB effective exchange rate of the quarterly monetarydemand function and the money demand function from the first quarter of2000tothe fourth quarter of2013included stock market variables were analyzed and themodel showed a good fitting degree.Chapter7carries out the detailed explanation of the results of empiricalanalysis.Chapter8is the conclusion of this paper.