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Understanding Money Demand in the Transition from a Centrally Planned to a Market Economy

Authors Delatte, Anne-Laure
Fouquau, Julien
Holz, Carsten A.
Issue Date 2012-05-02
Source Not yet published
Summary Fundamental changes in institutions during the transition from a centrally planned to a market economy present a formidable challenge to monetary policy decision makers. For the case of China, we examine the institutional changes in the monetary system during the process of transition and develop money demand functions that reflect these institutional changes. We consider seasonal unit roots and apply the Time-Varying Cointegration Smooth Transition Regression method to our representations of the changing institutional structure. Using a newly compiled dataset that covers an unprecedented long time period of 1984-2010, we are able to draw conclusions on the transitions in households' , firms' , and aggregate money demand, on the changing role of the credit plan and interest rates, on the mechanisms of macroeconomic control during economic transition, and on theoretical questions in the development and money literature.
Note JEL Classification: E41, P2 (P21, P24), P3 (P34), P52, O11, C51
Language English
Format Working paper
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