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Money Demand and the Potential of Seigniorage in China

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  • Geneviève BOYREAU-DEBRAY

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    Since 1978 China has been experiencing a strong monetary growth. However annual inflation has not exceeded 20%. One of the outcomes has been a high level of seigniorage. This paper looks for the factors that have enabled to collect this quasi-inflation-free revenue and asks the question of whether or not China can still rely on this kind of financing. For this purpose, an augmented Cagan's money demand is specified which takes into account the transitional characteristics of this economy. A Laffer type model is derived from it and provides an analysis of the dynamics of the potential of seigniorage.

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    File URL: http://publi.cerdi.org/ed/1998/1998.21.pdf
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    Paper provided by CERDI in its series Working Papers with number 199821.

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    Length: 20
    Date of creation: 1998
    Publication status: Published in Techniques financières et Développement, sept.-oct. 1998, pages 26-38
    Handle: RePEc:cdi:wpaper:89
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    1. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    2. Maurice Obstfeld, 1989. "Dynamic Seigniorage Theory: An Exploration," NBER Working Papers 2869, National Bureau of Economic Research, Inc.
    3. Klein,Martin & Neumann,Manfred, "undated". "Seignorage: What is it and who gets it?," Discussion Paper Serie B 124, University of Bonn, Germany.
    4. Hochreiter, Eduard & Rovelli, Riccardo & Winckler, Georg, 1996. "Central banks and seigniorage: A study of three economies in transition," European Economic Review, Elsevier, vol. 40(3-5), pages 629-643, April.
    5. David Burton & Wanda S Tseng & Kalpana Kochhar & Hoe Ee Khor & Dubravko Mihaljek, 1994. "Economic Reform in China; A New Phase," IMF Occasional Papers 114, International Monetary Fund.
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    7. Peebles, Gavin, 1992. "Why the Quantity Theory of Money Is Not Applicable to China, Together with a Tested Theory That Is," Cambridge Journal of Economics, Oxford University Press, vol. 16(1), pages 23-42, March.
    8. Adam, Christopher, 1995. "Fiscal adjustment, financial liberalization, and the dynamics of inflation: Some evidence from Zambia," World Development, Elsevier, vol. 23(5), pages 735-750, May.
    9. Yi, Gang, 1993. "Towards Estimating the Demand for Money in China," Economic Change and Restructuring, Springer, vol. 26(3), pages 243-270.
    10. Fry, Maxwell J., 1981. "Government revenue from monopoly supply of currency and deposits," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 261-270.
    11. Drazen, Allan, 1985. "A general measure of inflation tax revenues," Economics Letters, Elsevier, vol. 17(4), pages 327-330.
    12. Laumas, Prem S. & Porter-Hudak, Susan, 1986. "Monetization, economic development and the exogeneity of money," Journal of Development Economics, Elsevier, vol. 21(1), pages 25-34, April.
    13. Collier, Paul & Gunning, Jan Willem, 1991. "Money creation and financial liberalization in a socialist banking system: Tanzania 1983-88," World Development, Elsevier, vol. 19(5), pages 533-538, May.
    14. Girardin, Eric, 1996. "Is There a Long Run Demand for Currency in China?," Economic Change and Restructuring, Springer, vol. 29(3), pages 169-184.
    15. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
    16. Yi, Gang, 1991. "The monetization process in China during the economic reform," China Economic Review, Elsevier, vol. 2(1), pages 75-95.
    17. John Ashworth & Lynne Evans, 1998. "Functional form of the demand for real balances in Cagan's hyperinflation model," Applied Economics, Taylor & Francis Journals, vol. 30(12), pages 1617-1623.
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