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Determinates of the decline in the income-velocity of money in China: a new perspective

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  • ZHAO Liuyan

    (School of Economics, Peking University, Beijing, 100871, China)

  • WANG Yiming

    (School of Economics, Peking University, Beijing, 100871, China)

Abstract

The income velocity of money in China has been declining since the country's reform. By studying the money demand behavior in the agricultural and non-agricultural sectors, we found that the marginal propensity to money demand is much higher in the non-agricultural sector. This implies that as the share of the agricultural sector in national income declines, monetary expansion is expected to meet not only the needs of income growth, but also the rapid structural shifts in the sectoral composition of income. Hence, non-inflationary monetary expansion is possible as development proceeds. This provides a new perspective in understanding the decline in the income-velocity of money in China.

Suggested Citation

  • ZHAO Liuyan & WANG Yiming, 2006. "Determinates of the decline in the income-velocity of money in China: a new perspective," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 1(2), pages 256-271, June.
    • Handle: RePEc:fec:journl:v:1:y:2006:i:2:p:256-271
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    File URL: http://journal.hep.com.cn/fec/EN/10.1007/s11459-006-0008-3
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    More about this item

    Keywords

    income velocity of money; money demand; inflation expectations;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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