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


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


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.

Suggested Citation

  • Feltenstein, Andrew & Lebow, David & van Wijnbergen, Sweder, 1990. "Savings, Commodity Market Rationing, and the Real Rate of Interest in China," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(2), pages 234-252, May.
  • Handle: RePEc:mcb:jmoncb:v:22:y:1990:i:2:p:234-52

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    References listed on IDEAS

    1. Olivier Jean Blanchard & Peter Diamond, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 417-434.
    2. Jackman, Richard & Layard, Richard, 1991. "Does Long-term Unemployment Reduce a Person's Chance of a Job? A Time-Series Test," Economica, London School of Economics and Political Science, vol. 58(229), pages 93-106, February.
    3. Dickens, William T, et al, 1989. "Employee Crime and the Monitoring Puzzle," Journal of Labor Economics, University of Chicago Press, vol. 7(3), pages 331-347, July.
    4. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
    5. repec:fth:harver:1515 is not listed on IDEAS
    6. Louis N. Christofides & Andrew J. Oswald, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 985-1002.
    7. Olivier Jean Blanchard & Peter A. Diamond, 1989. "The Aggregate Matching Function," NBER Working Papers 3175, National Bureau of Economic Research, Inc.
    8. Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
    9. Nickell, Stephen J, 1990. "Unemployment: A Survey," Economic Journal, Royal Economic Society, vol. 100(401), pages 391-439, June.
    Full references (including those not matched with items on IDEAS)


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    Cited by:

    1. Xu, Yingfeng, 1998. "Money Demand in China: A Disaggregate Approach," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 544-564, September.
    2. Portes, Richard & Santorum, Anita, 1987. "Money and the consumption goods market in China," Journal of Comparative Economics, Elsevier, vol. 11(3), pages 354-371, September.
    3. 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 1-6.
    4. Aart Kraay, 2000. "Household Saving in China," World Bank Economic Review, World Bank Group, vol. 14(3), pages 545-570, September.
    5. Svensson, Lars E O & van Wijnbergen, Sweder, 1989. "Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances," Economic Journal, Royal Economic Society, vol. 99(397), pages 785-805, September.
    6. Jeffrey Zax, 2014. "Housing allocations, imputed rents and inequality in urban China," ERSA conference papers ersa14p1682, European Regional Science Association.
    7. repec:kap:iaecre:v:7:y:2001:i:3:p:275-295 is not listed on IDEAS
    8. Bennett, John & Dixon, Huw David, 1995. "Macroeconomic equilibrium and reform in a transitional economy," European Economic Review, Elsevier, vol. 39(8), pages 1465-1485, October.
    9. Cevdet Denizer & Holger C. Wolf, 1998. "Household Savings in Transition Economies," NBER Working Papers 6457, National Bureau of Economic Research, Inc.
    10. 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.
    11. Robert Mulligan & Erwin Nijsse, 2001. "Shortage and currency substitution in transition economies: Bulgaria, Hungary, Poland, and Romania," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 7(3), pages 275-295, August.
    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.
    13. 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.
    14. Liu, Jung-Chao & Xu, Lilai, 1997. "Household savings and investment: The case of Shanghai," Journal of Asian Economics, Elsevier, vol. 8(1), pages 77-91.
    15. Thorne,Alfredo Eduardo, 1992. "Issues in reforming financial systems in Eastern Europe : the case of Bulgaria," Policy Research Working Paper Series 882, The World Bank.
    16. 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.

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