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

49 Pages Posted: 8 Nov 2013

See all articles by Anne Laure Delatte

Anne Laure Delatte

Groupe ESC Rouen; Observatoire Français des Conjonctures Economiques

Julien Fouquau

University of Orleans

Carsten A. Holz

Hong Kong University of Science & Technology (HKUST) - Division of Social Science

Date Written: November 2013

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

JEL Classification: C51, E41, O11, P24, P52

Suggested Citation

Delatte, Anne Laure and Fouquau, Julien and Holz, Carsten A., Understanding Money Demand in the Transition from a Centrally Planned to a Market Economy (November 2013). CEPR Discussion Paper No. DP9721, Available at SSRN: https://ssrn.com/abstract=2351328

Anne Laure Delatte (Contact Author)

Groupe ESC Rouen ( email )

1, rue du Maréchal Juin - BP 188
Mont Saint Aignan Cedex, Normandy 76825
France

Observatoire Français des Conjonctures Economiques ( email )

69 Quai d'Orsay
Paris 75004
France

Julien Fouquau

University of Orleans ( email )

Rue de Blois
B.P. 6739
45067 Orleans Cedex 2, Orleans cedex 2 45067
France

Carsten A. Holz

Hong Kong University of Science & Technology (HKUST) - Division of Social Science ( email )

Division of Social Science
Clear Water Bay
Clear Water Bay, Kowloon
Hong Kong

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