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Inverse Demand Systems for Composite Liquid Assets: Evidence from China

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  • Gary Wong
  • Qiao Yu
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    Abstract

    This paper applies the concept of inverse demands and its related scale and substitution effects to model the demand for liquid assets in China. We also propose a new model, termed the Modified Almost Ideal Inverse Demand System (MAIIDS), which nests the Almost Ideal Inverse Demand System (AIIDS) as a special case. We estimate this new model and its special case by using Chinese panel data and find it statistically superior to the AIIDS. Results also reveal the improved regularity features of the MAIIDS, and show that demand patterns of liquid assets across different income groups in China are distinctive.

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    File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2001/Gary%20Wong%20-%20No.%2097.pdf
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    Bibliographic Info

    Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 097.

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    Date of creation: 20 Sep 2001
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    Handle: RePEc:qut:dpaper:097

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    Web page: http://www.bus.qut.edu.au/faculty/economics/
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    Related research

    Keywords: AIIDS; MAIIDS; Regularity; Liquid assets.;

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    References

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    1. Ma, Guonan, 1993. "Macroeconomic disequilibrium, structural changes, and the household savings and money demand in China," Journal of Development Economics, Elsevier, vol. 41(1), pages 115-136, June.
    2. Huang, Kuo S., 1983. "The family of inverse demand systems," European Economic Review, Elsevier, vol. 23(3), pages 329-337, September.
    3. Eales, James S. & Unnevehr, Laurian J., 1994. "The inverse almost ideal demand system," European Economic Review, Elsevier, vol. 38(1), pages 101-115, January.
    4. Chow, Gregory C., 1987. "Money and price level determination in China," Journal of Comparative Economics, Elsevier, vol. 11(3), pages 319-333, September.
    5. Hoanjae Park & Walter N. Thurman, 1999. "On Interpreting Inverse Demand Systems: A Primal Comparison of Scale Flexibilities and Income Elasticities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 950-958.
    6. Cooper, Russel J & McLaren, Keith R, 1996. "A System of Demand Equations Satisfying Effectively Global Regularity Conditions," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 359-64, May.
    7. Fry, Jane M. & Fry, Tim R. L. & McLaren, Keith R., 1996. "The stochastic specification of demand share equations: Restricting budget shares to the unit simplex," Journal of Econometrics, Elsevier, vol. 73(2), pages 377-385, August.
    8. Yu, Qiao, 1997. "Economic Fluctuation, Macro Control, and Monetary Policy in the Transitional Chinese Economy," Journal of Comparative Economics, Elsevier, vol. 25(2), pages 180-195, October.
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    10. Feltenstein, Andrew & Ha, Jiming, 1991. "Measurement of repressed inflation in China : The lack of coordination between monetary policy and price controls," Journal of Development Economics, Elsevier, vol. 36(2), pages 279-294, October.
    11. Sato, Ryuzo & Koizumi, Tetsunori, 1973. "On the Elasticities of Substitution and Complementarity," Oxford Economic Papers, Oxford University Press, vol. 25(1), pages 44-56, March.
    12. James Eales & Catherine Durham & Cathy R. Wessells, 1997. "Generalized Models of Japanese Demand for Fish," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1153-1163.
    13. Xu, Yingfeng, 1998. "Money Demand in China: A Disaggregate Approach," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 544-564, September.
    14. Brown, Mark G & Lee, Jonq-Ying & Seale, James L, Jr, 1995. "A Family of Inverse Demand Systems and Choice of Functional Form," Empirical Economics, Springer, vol. 20(3), pages 519-30.
    15. Feltenstein, Andrew & Farhadian, Ziba, 1987. "Fiscal Policy, Monetary Targets, and the Price Level in a Centrally Planned Economy: An Application to the Case of China," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(2), pages 137-56, May.
    16. Cornes,Richard, 1992. "Duality and Modern Economics," Cambridge Books, Cambridge University Press, number 9780521336017, October.
    17. Barten, A. P. & Bettendorf, L. J., 1989. "Price formation of fish : An application of an inverse demand system," European Economic Review, Elsevier, vol. 33(8), pages 1509-1525, October.
    18. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
    19. Russel J. Cooper & Keith R. McLaren, 1992. "An Empirically Oriented Demand System with Improved Regularity Properties," Canadian Journal of Economics, Canadian Economics Association, vol. 25(3), pages 652-68, August.
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    Cited by:
    1. Kathleen Goffey & Andrew Worthington, 2002. "Motor Vehicle Usage Patterns in Australia: A Comparative Analysis of Driver, Vehicle & Purpose Characteristics for Household & Freight Travel," School of Economics and Finance Discussion Papers and Working Papers Series 117, School of Economics and Finance, Queensland University of Technology.

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