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Savings, Commodity Market Rationing, and the Real Rate of Interest in China

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  • Feltenstein, Andrew
  • Lebow, David
  • van Wijnbergen, Sweder

Abstract

This paper uses an intertemporal, disequilibrium framework to analyze the rapid increase in personal savings that has taken place in China since 1979. A theoretical model of savings behavior under rationing is developed, and a specification of a "virtual" price index is derived. The virtual price index is then used to estimate certain savings functions, and is found to explain the data better than official price indices. When savings are allowed to depend on real interest rates, defined in terms of the virtual price index, a negative and significant interest rate effect on consumption is found. Using official prices these results no longer hold. Copyright 1990 by Ohio State University Press.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 22 (1990)
Issue (Month): 2 (May)
Pages: 234-52

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Handle: RePEc:mcb:jmoncb:v:22:y:1990:i:2:p:234-52

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Yin Zhang & Guang Hua Wan, 2004. "Liquidity constraint, uncertainty and household consumption in China," Applied Economics, Taylor & Francis Journals, vol. 36(19), pages 2221-2229.
  2. Cevdet Denizer & Holger C. Wolf, 1998. "Household Savings in Transition Economies," NBER Working Papers 6457, National Bureau of Economic Research, Inc.
  3. Richard Portes & Anita Santorum, 1988. "Money and the Consumption Goods Market in China," NBER Working Papers 2143, National Bureau of Economic Research, Inc.
  4. Feltenstein, Andrew & Iwata, Shigeru, 2005. "Decentralization and macroeconomic performance in China: regional autonomy has its costs," Journal of Development Economics, Elsevier, vol. 76(2), pages 481-501, April.
  5. Andrew Feltenstein & Saleh M. Nsouli, 2003. ""Big Bang" Versus Gradualism in Economic Reforms: An Intertemporal Analysis with an Application to China," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 6.
  6. Dixon, Huw David, 1993. "Macroeconomic Equilibrium and Reform in a Transitional Economy," CEPR Discussion Papers 758, C.E.P.R. Discussion Papers.
  7. Shulian Zhang, 2005. "Consumption Behaviour Under Institutional Transitions in China," School of Economics and Finance Discussion Papers and Working Papers Series 189, School of Economics and Finance, Queensland University of Technology.
  8. Lars E.O. Svensson & Sweder van Wijnbergen, 1990. "Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances," NBER Working Papers 2262, National Bureau of Economic Research, Inc.
  9. Thorne, Alfredo, 1992. "Issues in reforming financial systems in Eastern Europe : the case of Bulgaria," Policy Research Working Paper Series 882, The World Bank.
  10. Aart Kraay, 2000. "Household Saving in China," World Bank Economic Review, World Bank Group, vol. 14(3), pages 545-570, September.
  11. Xu, Yingfeng, 1998. "Money Demand in China: A Disaggregate Approach," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 544-564, September.
  12. Guy Shaojia Liu & Haiyan Song, 2003. "A Dual-Price Demand Theory for Economies under Transition," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 1(2), pages 185-203.

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