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Velocity of Money in Post-Reform China: 1978-2011

Author

Listed:
  • D. Ajit

    () (University of Northern BC)

  • Baotai Wang

    () (University of Northern BC)

Abstract

This study examines the proximate determinants of velocity of money in post-reform China. It confirms that China is still in the first phase (declining) of U-shaped velocity behavior witnessed in other industrialized countries. The empirical results also show that the decline in M2 velocity is more pronounced than that in M1 velocity, and that the long-run determinants of velocity are primarily influenced by transaction demand for money and to a lesser extent by alternative cost of holding money. Finally, the study brings into the focus on the increasing role of financial innovation in explaining velocity behavior of monetary aggregates in China.

Suggested Citation

  • D. Ajit & Baotai Wang, 2013. "Velocity of Money in Post-Reform China: 1978-2011," Transnational Corporations Review, Ottawa United Learning Academy, vol. 5(1), pages 28-39, March.
  • Handle: RePEc:oul:tncr09:v:5:y:2013:i:1:p:28-39
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