The stability of money demand in China: Evidence from the ARDL model
This study examines the demand for broad money (M2) in China using the autoregressive distributed lag (ARDL) cointegration framework. The results based on the bounds testing procedure confirm that a stable, long-run relationship exists between M2 and its determinants: real income, inflation, foreign interest rates and stock prices. Importantly, our results reveal that stock prices have a significant wealth effect on long- and short-run broad money demand; its omission can lead to serious misspecifications in the money demand function (MDF). This finding is consistent with the notion that asset inflation (deflation) has systematic influence on the pattern of monetary aggregates.
Volume (Year): 33 (2009)
Issue (Month): 3 (September)
|Contact details of provider:|| Postal: Landshuter Str. 4, 93047 Regensburg|
Phone: +49-(0)941-943 54 10
Fax: +49-(0)941-943 54 27
Web page: http://www.elsevier.com/locate/inca/621171
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chen, Baizhu, 1997. "Long-Run Money Demand and Inflation in China," Journal of Macroeconomics, Elsevier, vol. 19(3), pages 609-617, July.
- Emmanuel Anoruo, 2002. "Stability of the Nigerian M2 Money Demand Function in the SAP Period," Economics Bulletin, AccessEcon, vol. 14(3), pages 1-9.
- Bahmani-Oskooee, Mohsen & Bohl, Martin T., 2000. "German monetary unification and the stability of the German M3 money demand function," Economics Letters, Elsevier, vol. 66(2), pages 203-208, February.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- Amir Kia, 2006. "Economic policies and demand for money: evidence from Canada," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1389-1407.
- Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
- Jeroen J. M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992.
"The power of cointegration tests,"
International Finance Discussion Papers
431, Board of Governors of the Federal Reserve System (U.S.).
- Hansen, Bruce E, 1992.
"Tests for Parameter Instability in Regressions with I(1) Processes,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 10(3), pages 321-35, July.
- Hansen, Bruce E, 2002. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 45-59, January.
- John Thornton, 1998. "Real stock prices and the long-run demand for money in Germany," Applied Financial Economics, Taylor & Francis Journals, vol. 8(5), pages 513-517.
- Hafer R. W. & Kutan A. M., 1993. "Further Evidence on Money, Output, and Prices in China," Journal of Comparative Economics, Elsevier, vol. 17(3), pages 701-709, September.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Wu, Chung-Shu & Lin, Jin-Lung & Tiao, George C. & Cho, David D., 2005. "Is money demand in Taiwan stable?," Economic Modelling, Elsevier, vol. 22(2), pages 327-346, March.
- Bijan B. Aghevli & Mohsin S. Khan & P. R. Narvekar & Brock K. Short, 1979. "Monetary Policy in Selected Asian Countries (La politique monÃ©taire dans certains pays d'Asie) (La polÃtica monetaria de algunos paÃses asiÃ¡ticos seleccionados)," IMF Staff Papers, Palgrave Macmillan, vol. 26(4), pages 775-824, December.
- Anders Rahbek & Rocco Mosconi, 1999. "Cointegration rank inference with stationary regressors in VAR models," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 76-91.
- Massimo Caruso, 2001. "Stock prices and money velocity: a multi-country analysis," Empirical Economics, Springer, vol. 26(4), pages 651-672.
- repec:ebl:ecbull:v:14:y:2002:i:3:p:1-9 is not listed on IDEAS
- Qin, Duo & Quising, Pilipinas & He, Xinhua & Liu, Shiguo, 2005. "Modeling monetary transmission and policy in China," Journal of Policy Modeling, Elsevier, vol. 27(2), pages 157-175, March.
- Chien-Chiang Lee & Mei-Se Chien, 2008. "Stability of money demand function revisited in China," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3185-3197.
- James Payne, 2003. "Post stabilization estimates of money demand in Croatia: error correction model using the bounds testing approach," Applied Economics, Taylor & Francis Journals, vol. 35(16), pages 1723-1727.
- A. C. Arize & Malindretos John, 2000. "Does Inflation Variability Affect the Demand for Money in China? Evidence from Error-Correction Models," International Economic Journal, Taylor & Francis Journals, vol. 14(1), pages 47-60.
- Choudhry, Taufiq, 1996. "Real stock prices and the long-run money demand function: evidence from Canada and the USA," Journal of International Money and Finance, Elsevier, vol. 15(1), pages 1-17, February.
- Arize, Augustine C. & Malindretos, John & Shwiff, Steven S., 1999. "Structural breaks, cointegration, and speed of adjustment Evidence from 12 LDCs money demand," International Review of Economics & Finance, Elsevier, vol. 8(4), pages 399-420, November.
When requesting a correction, please mention this item's handle: RePEc:eee:ecosys:v:33:y:2009:i:3:p:231-244. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.