FINANCIAL LIBERALIZATION AND MONEY DEMAND STABILITY IN CHINA
Journal Title: Topics in Economics, Business and Management (EBM) - Year 2017, Vol 1, Issue 2
Abstract
The existing literatures have identified many channels through which financial liberalization may influence money demand. There are evidences of stability as well as instability of demand for money due to financial development for developing economies. The main objective of the current study is to evaluate the effect of financial liberalization on money demand in China for a period of 27 years (1990-2016), i.e. whether financial liberalization has affected the demand for money or not. The issue is important as stable demand for money function is a precondition for formulating and operating monetary policy. To achieve the objective Johansen co-integration and vector error correction techniques are employed to estimate the long and short run relationship between broad money M2 and our measure of financial liberalization with other determinants of demand for money like gross domestic product, inflation, foreign interest rate and exchange rate. In order to verify the stability of the model, the cumulative sum of recursive residuals (CUSUM) and cumulative sum of squires of recursive residuals CUSUMSQ tests have been applied. The empirical results indicated that for broad money, there exists long-run money demand function.
Authors and Affiliations
Qin Yige, Sesay Brima
Keywords
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- EP ID EP411234
- DOI 10.26480/wsebm.01.2017.28.31
- Views 133
- Downloads 0
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