Stock prices and demand for money in China: New evidence
AbstractThis paper investigates the relationship between stock prices and the real money demands for China within a cointegrated framework. This study reports two important results. First, test results reveal that a stable long-term relationship exists between broad money (M2) and its determinants including real income, foreign interest rate, and stock prices. Second, stock prices have a significant substitute (positive) effect on long-run broad-money (M2) demand and its omission can lead to serious misspecification in the money demand function in both the short- and long-run. Finally, we demonstrate that long-run income elasticity is not significantly different from unity with the inclusion of stock prices in the money demand equation.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.
Volume (Year): 19 (2009)
Issue (Month): 1 (February)
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Web page: http://www.elsevier.com/locate/intfin
Real M2 money demand Cointegration test;
Find related papers by JEL classification:
- M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics
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